USD/IDR drops to 100-day SMA ahead of Bank Indonesia rate decision

  • Risk-off, post-Fed moves drag the pair to near-term important support.
  • All eyes on the BI rate decision for fresh impulse.

With the 50/21-day SMAs successfully restricting the USD/IDR pair’s immediate upside, the quote tests 100-DMA while trading near 14,200 ahead of the Bank Indonesia (BI) rate decision at 07:00 GMT on Thursday.

While post-FOMC momentum initially dragged the pair downwards, the latest shift in risk sentiment offers additional strength to the bears.

Global risk gauge, 10-year yields for the US government bonds, slipped beneath 2.0% for the first time since November 2016.

Latest bearish messages from top-tier central banks like the US Federal Reserve and the European Central Bank (ECB) could be considered as a reason for the market’s risk-off.

Investors now await monetary policy decision from the Indonesia central bank for fresh impulse. The BI isn’t expected to alter present monetary policy with the benchmark rate being around 6.0%. However, dovish communication can’t be ruled out considering recently mixed data and macro pessimism.

Ahead of the release, TD Securities said:

We expect no change from Bank Indonesia, with the 7d reverse repo likely to be maintained at 6%. We think BI is edging towards a rate cut amid low inflation and slowing activity, but will likely want to see further signs of IDR stability before pulling the trigger to begin reversing the 175bp of hikes implemented in 2018. The upside surprise in May CPI will not be a concern for BI given overall generally benign inflation pressures though they will want to monitor upside pressure on food prices. However, a global backdrop where markets are increasingly pricing in Fed rate cuts is conducive to easing and we expect BI to ease by August.

Technical Analysis

Sustained break of 14,203 support level comprising 100-day simple moving average (SMA) can fetch the quote down to June low near 14,157 and then towards April month bottom around 13,974.

On the upside, 21-day SMA at 14,273 and 14,293 comprising 50-day SMA limits the pair’s immediate advances, a break of which can again propel the quote in the direction to 200-DMA level of 14,431.

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