US Dollar, Indonesian Rupiah, USD/IDR, Bank of Indonesia, Jakarta Composite – Talking Points

  • USD/IDR may rise in the aftermath of the Bank of Indonesia
  • Expect the central bank to increasingly step in to intervene
  • Jakarta Composite pushes above 4-month high, banks fall

The USD/IDR may rise in the aftermath of the Bank of Indonesia (BI) monetary policy announcement. Yesterday, the BI lowered its benchmark 7-day reverse repo rate to 4.00% from 4.25%, as widely expected by economists. Not only was this a second consecutive reduction after June, but this left it at its lowest point on record, underscoring the severity of the pandemic’s toll on Southeast Asia’s largest economy.

The deposit facility rate was also lowered to 3.25% from 3.50% prior, this is the return banks receive for depositing cash with the central bank overnight. The BI noted that the global economic recovery is ‘taking longer than expected’, but domestic indicators seem to be pointing to a rebound. Net foreign fund inflows are expected to continue. Capital flows can be some of the most influential forces for emerging market currencies.

In the event IDR continues to depreciate, expect the Bank of Indonesia to take increasingly bolder action to stabilize its currency. BI’s Governor Perry Warjiyo reiterated that the Rupiah is undervalued and that it will continue currency stabilization measures. From here, further interest rate cuts are to depend on factors such as inflationary pressures.

Indonesia’s benchmark stock index, the Jakarta Composite, closed at its highest in over 4 months yesterday. However, the index was weighed down by financials, specifically banks. These construct about 31% of the index. Declining borrowing costs shrink the margin which lending institutions generate a return on loans. From here, rising coronavirus cases in the US could risk denting sentiment in the APAC region, hurting local stocks.

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Indonesian Rupiah Technical Analysis

USD/IDR extended its push above the 20-day and 50-day Simple Moving Averages (SMA). This has opened the door to a Golden Cross forming in the future, whereby the near-term SMA crosses above the medium-term SMA. This is typically a bullish signal which could pave the way for a test of the 38.2% Fibonacci retracement at 15005. Otherwise, key support sits below at 14342.

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USD/IDR – Daily Chart

USD/IDR May Rise as Jakarta Composite Falls After Bank of Indonesia

Chart Created Using TradingView

iShares Trust MSCI Indonesia ETF

Below is the MSCI Indonesia ETF (EIDO) which closely mimics the Jakarta Composite. The former has taken out resistance “A” while also establishing trend line “B”. Immediate resistance sits above at 19.39. This is as prices are running out of room to consolidate between the falling trend line and rising support from March – blue line. A push above resistance exposes the June peak. A turn lower places the focus on 17.85.

EIDO – Daily Chart

USD/IDR May Rise as Jakarta Composite Falls After Bank of Indonesia

Chart Created Using TradingView

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter





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