USD/IDR: Rupiah analysis as Indonesia inflation retreat continues

The USD/IDR price remained in a tight range on Monday after the encouraging Indonesian consumer inflation data. The pair was trading at 15,455 on Tuesday, about 3.7% below its highest point in 2023. It has risen by more than 5.1% above its lowest point in 2023.

Indonesia, one of the fastest-growing countries in Asia, is doing well as inflation retreats. The most recent data by the country’s statistics agency showed that the headline inflation dropped to 2.61% in December. This decline was relatively lower than the median estimate of 2.72%.

Indonesia’s headline CPI peaked at 5.71% in October 2022 and has been dropping since then. Further, the CPI retreated to 0.41% on a MoM basis, much lower than the pandemic peak of over 1%.

Indonesia’s inflation has been falling, helped by the general decline of crude oil and natural gas prices. The retreat also happened because of the actions of the Bank of Indonesia decisions.

Like other central banks, the BoI hiked rates to 6.0% from the pandemic low of 3.50%. It now sits at the highest point since June 2019. Now, analysts believe that the bank will start cutting rates in the coming months since its economy is slowing.

The most recent data shows that Indonesia’s economy slowed to 4.94% in the third quarter, lower than the median estimate of 5.05%. It had grown by over 5.17% in the previous quarter.

One of the key reasons for Indonesia’s slowdown is the recent slump of key commodities that the country exports. There are also concerns about its key export markets like China and Japan.

The USD/IDR pair has also retreated after the recent actions by the Federal Reserve. In its final decision of the year, the Fed hinted that it will start cutting interest rates in the coming months.

USD/IDR chart by TradingView

Turning to the daily chart, we see that the USD to IDR exchange rate continued retreating in the past few weeks. The pair has retreated from last year’s high of 15,960 to a low of 15,465. It has moved below the 23.6% retracement point and the 50-day and 25-day Exponential Moving Averages (EMA).

The pair has also dropped below the first support of the Andrews Pitchfork tool. Therefore, the outlook for the USD/IDR is bearish, with the next point to watch will be at 15,238, the 38.2% retracement point.

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