A Rupiah Under Pressure
The Indonesian Rupiah (IDR) had an overall difficult year. On January 1st, 2021, the US Dollar was trading at approximately 16,675 IDR. As of Friday, January 14th, 2022, the USD was trading at approximately 18,143 IDR. Therefore, the USD is up about 8.8% year-to-date. In addition, the USD hit a nearly five months high of 18,223 IDR on October 27th, 2021. Ten-year government bond yields in Indonesia rose to approximately 7.7%, which is the highest level since 2015. This increase in bond yields has led to concerns regarding capital flight and has caused the IDR to fall further according to Bank Indonesia toward heavier market intervention. Our look at Asian currencies in USD/INR nearing 97 tells a similar story, so let’s see what the USD/IDR chart says.
Reading the USD/IDR Chart
USD/IDR daily chart: moving averages, resistance at 18,223 and 18,300, support at 18,050, 17,900 and 17,750. Illustrative chart drawn to published levels; not live exchange data.
The red candle represents a day where the U.S. Dollar closed higher than the Indonesian Rupiah (weakening Rupiah), whereas the grey candle represents a day where the Dollar closed lower. The gold line represents the 20-day moving average, and the black line represents the 50-day moving average. Both are below the current price. There are also two red dotted lines representing resistance levels of 18,223 and 18,300. In addition, there are two black dotted lines representing support levels of 18,050 and 18,125 mark support and resistance zones at 18,050, 17,900 and 17,750.
Note that the stair-step pattern since early October is the classic signature of an upward trending market: each subsequent pullback was stopped at a level above where the previous one was stopped. Dotted arrows illustrate the two potential directions that traders may be considering, either to move higher toward 18,300, or to retreat toward 17,900 if government intervention takes effect.
Why the Dollar Keeps Winning
The main driver is the Federal Reserve , which held rates this week while leaving a December hike on the table. Our Fed rate analysis and US Dollar Index report explain why yields stay firm. The dollar’s strength is broad, too: the euro slid to a 17-month low, as we covered in EUR/USD below 1.13 .
What Intervention Looks Like
Central banks defending their currencies will frequently demonstrate an identifiable pattern on charts. This pattern includes quick spikes with short-lived gains; long upper wicks with immediate reversals; and finally, periods of relative calm and consolidation. Bank Indonesia may use any combination of the following measures to defend its currency: selling dollars in the spot and forward markets; buying government bonds to reduce yield volatility; and/or adjusting policy rates.
While none of these strategies provide a guarantee that the trend will turn around, they collectively may be able to slow down the downward movement of the currency, and potentially make it difficult for late dollar buyers to profit. The most valuable takeaway for you is to understand that there may be some “air pockets” in the currency’s price action. As a result, you should avoid setting your stop loss orders exactly at round numbers like 18,300, which are typically areas where orders accumulate. Additionally, you may want to consider scaling into your position over time rather than committing all your capital simultaneously.
Prior to each trading day, you should review the economic calendar. Rate decisions, inflation data, and Federal Reserve Chair speeches can dramatically alter the landscape of the market in a matter of seconds. Therefore, being flexible is typically more beneficial to your bottom line than being inflexible.
Trading Plan and Risks
Use caution when buying new dollars around the 18,223 level, as Bank Indonesia is likely to intervene if there are large swings in price. A close on a daily basis above 18,300 could indicate that the Indonesian rupiah is losing its ability to defend itself, while a close below 18,050 could mean that Bank Indonesia is successfully intervening. The fiscal position of Indonesia also affects investor confidence, and the IMF monitors the country’s fiscal policy and debt levels. Therefore, use smaller than average position sizes and wider than normal stop-loss levels. The above is general information and not intended to provide personal financial advice.
FAQs
Why is the Indonesian rupiah weakening against the dollar?
The dollar has risen against most currencies due to high U.S. bond yields and anticipated Fed rate increases. Domestically, there is growing concern regarding possible capital flight as Indonesian bond yields climb toward 7.7 percent on the 10 years.
What is the key USD/IDR levels to watch?
Resistance sits at 18,223 and the round 18,300 level. Support sits at 18,050, 17,900 and 17,750.
Will Bank Indonesia intervene to support the rupiah?
Market participants anticipate that if pressure mounts on the Indonesian rupiah, the central bank of Indonesia (Bank Indonesia) will increase its intervention activities. However, this is an anticipation, not a certainty. Intervention can help to slow down a decline in value for the rupiah, but it does not guarantee that the currency will regain some of its lost ground. Therefore, be on the lookout for quick increases in value which decrease in value rapidly.
What could push USD/IDR higher or lower?
The dollar is supported by the hawkish stance of the Federal Reserve Bank (Fed), the rise in interest rates on US government bonds, and investors’ reluctance to take on risk. On the other hand, the Indonesian Rupiah can benefit from the potential intervention of Bank Indonesia (BI), lower US economic indicators, or a return of stability to global financial markets.
The post USD/IDR Technical Analysis: Rupiah Weakness Tests Bank Indonesia’s Defence Line appeared first in UK on InvestingCube .
