USD/IDR forecast as Indonesia foreign reserves surges
The Indonesian rupiah remained under pressure as most emerging market currencies continued to drop amid soaring US bond yields. On Wednesday, the USD/IDR exchange rate was trading at 16,200, up 7.55% from its lowest level in October. So, how will the soaring Indonesian forex reserves impact the currency?
Indonesia’s foreign reserves are surging
The falling Indonesian rupiah has a key backstop in that the foreign reserves have continued soaring and now sits at a record high. According to the central bank, reserves jumped by $5.5 billion last month, bringing the total to $155.7 billion.
Foreign reserves have jumped, helped by higher taxes, oil and gas exports, and foreign loans have helped to boost these reserves. This trend may continue in the near term as the economy continues recovering.
The higher reserves will help the central bank intervene in the forex market to stem the sell-off. Central banks use their reserves to increase or reduce the dollar supply.
These reserves came as Indonesia and other emerging market currencies were under pressure following the election of Donald Trump in the United States. Some of the most notable ones like the Brazilian real and Indian rupee, have crashed to a record low this year.
Indonesian central bank cuts
The Indonesian rupiah has crashed as the central bank slashed interest rates now that inflation has pulled back in the past few months. It slashed interest rates to 6% in September and has maintained them there since then.
The most recent data showed that the headline Consumer Price Index (CPI) dropped to 1.57%, down from the 2022 high of 5.95%. This trend may slow in the near term as the Indonesian rupiah continue its downtrend.
According to the statistics agency, the economy expanded by 4.95% year over year, slightly lower than its growth in Q2. Still, it is one of the best-performing economies in Asia.
Read more: USD/IDR: Why is the Indonesian rupiah in a freefall?
US dollar index surge
The USD/IDR has soared because of the ongoing US dollar index strength. The index jumped to $108.65 and is nearing this yearly high of $109.53.
It has surged because of the bond market’s ongoing performance, as the 30-year and 10-year yields soared to their highest levels since 2023.
Bond yields and the DXY index have continued rising as the market anticipates a more hawkish Federal Reserve.
Recent data showed that the US economy is strong enough to maintain higher rates this year. For example, data released on Tuesday showed that job vacancies soared to over 8 million, the highest level in over six months.
More data showed that the services and composite PMIs continued rising, an important thing since the sector is the biggest part of the American economy.
The next important catalyst for the USD/IDR pair will be the US nonfarm payroll numbers, which are scheduled for Friday. These numbers will provide more information about the state of the American economy.
USD/IDR technical analysis
USD/IDR chart by TradingView
The daily chart shows that the USD to IDR exchange rate has been in a strong uptrend in the past few months. It has moved from 15,068 in September last year to a high of $16,200.
The pair is about to form a double-top pattern at 16,480, and is slowly forming a rising wedge. In most periods, these two patterns are some of the most bearish signs in the market. The Relative Strength Index (RSI) and the Percentage Price Index (PPI) have formed a bearish divergence pattern.
Therefore, the pair will likely rise and retest the resistance point at 16,480 and then resume the downtrend.
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