USD/IDR nears multi-month low of 13,601 with eyes on BI decision

• USD/IDR remains on the back foot after testing the lowest since February 2018 during the early Asian session.
• Recently positive trade data, comments from BI strengthen the Indonesian Rupiah (IDR).
• The Bank Indonesia (BI) isn’t expected to alter the monetary policy but the IDR can emerge as Asian’s stronger currency in 2020.

USD/IDR keeps losses while trading around 13,630 ahead of the European session on Thursday. The pair slipped during the early-day amid traders’ caution before the Bank Indonesia (BI)’s monetary policy meeting.

“Twenty-two of 25 economists in the poll expected BI to hold the 7-day reverse repurchase rate steady at 5.00%, at its first policy meeting of the year,” says Reuters Poll. The story further mentions that BI estimates the economy will expand around 5.1%-5.5% this year, slightly faster than last year’s projected 5.1% rate - the first-time growth has slowed in four years.

On the contrary, analysts at TD Securities chose to take the risk of expecting a 0.25% rate cut while saying, “We expect Bank Indonesia to cut policy rates, likely reducing its 7d reverse repo by 25bps to 4.75% on Thursday 23rd January. This compares to a hold consensus forecast, with only 4 others out of 31 analysts polled (Bloomberg) expecting a 25bp cut. Since the last meeting on 19 December IDR has strengthened by around 2.5% vs. USD while inflation has continued to fall. We think this offers plenty of scope for BI to ease to boost growth.”

The Asian nation’s fundamentals like trade balance and retail sales have so far pleased the IDR buyers. The government's aggresive measures seem to have played their role. However, the BI Governor Perry Warjiyo recently said to continue an accommodative monetary policy. The central bank earlier said “will give room for the rupiah to strengthen along with market mechanisms. Fundamentally, the rupiah is not yet overvalued."

While a surprise rate change may offer the pair’s momentum, Bloomberg has the view that the Indonesian rupiah is likely to emerge as Asia’s best performing currency this year, replacing the Thai baht that saw a massive lead in 2019.

Following the BI decision, markets will keep eyes on the risk catalysts like news concerning China virus, EU-US, Sino-US trade relations as well as US President Donald Trump’s impeachment hearings.

Technical Analysis

With the second consecutive weekly trading below 200-week SMA level of 13,780, USD/IDR prices seem to decline further towards January 2018 low near 13,260.