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ASEAN Outlook Talking Points:

  • Indonesian Rupiah put in a comeback versus the US Dollar as anticipated
  • ASEAN bloc currencies like PHP, MYR and SGD look to risk trends ahead
  • USD/IDR is making downside progress amidst Bank of Indonesia rate hikes

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As expected, the Indonesian Rupiah put in an aggressive comeback last week against the US Dollar as its associated central bank raised rates and signaled more are on their way. Bank of Indonesia lifted the 7-day reverse repo rate to 4.75% from 4.50% in an out-of-cycle meeting to help stabilize their currency. Deputy Governor Dody Budi Waluyo noted that they are open to more of those ahead. Meanwhile, the US Dollar took a breather from its rally as risk trends waxed and waned.

A lack of key domestic event risk for the greenback in the week ahead places those risks trends as the main catalyst for ASEAN bloc currencies like the Malaysian Ringgit or Singapore Dollar. On this front, escalating trade war fears could be a concern. Last week, the Trump Administration went ahead with allowing metal tariffs to impact imports from Canada, Mexico and the European Union. This almost immediately sparked concern from the impacted countries, igniting prospects of retaliation.

In an environment where said countries follow through with retaliatory tariffs, sentiment is likely to take a hit and have knock-on effects on ASEAN bloc currencies. On this front, we may get updates from Japan’s Prime Minister Shinzo Abe at his meeting with Donald Trump on Thursday. These leaders are going to talk about trade and the planned US/North Korea Summit later this month. Then, on Friday G7 leaders will be meeting in Canada. Over the weekend, members hinted that “decisive action” could yet to come.

Locally, there may be some domestic event risks which could spark near-term volatility. For the Philippine Peso, it is awaiting a local inflation report. On Tuesday, Philippine CPI is anticipated to rise 4.9% y/y in May from 4.5% in April. Rising price pressures may inspire Bangko Sentral ng Pilipinasto raise rates in the future. However, keep in mind that after the central bank raised rates in May, it hinted that more are not on their way in a ‘dovish hike’. We shall see to what extent the inflation data may change its mind, if at all.

The week ahead will also reveal the amount of foreign exchange reserves that Malaysia, the Philippines, Indonesia and Singapore have. For these nations, buying and selling FX reserves is one way of keeping their currencies stable in the market. For example, since the US Dollar’s aggressive appreciation in mid-April, Indonesia’s reserves have fallen to their lowest since June 2017. This suggests that the central bank is spending them in efforts to keep their currency leveled against a rising US Dollar.

USD/IDR Technical Analysis: Heading Lower

On a daily chart, USD/IDR had fallen below a rising channel dating back to late-January. Heading into the break lower, negative RSI divergence emerged and signaled that a reversal might have been on its way. This is because upside momentum was ebbing and now, more losses could be ahead given the confirmation.

From here, immediate support is the 50% midpoint of the Fibonacci Retracement at 13,805. A push below that would expose 13,736 which is the combination of horizontal support/resistance dating back to February. On the other hand, near-term resistance is 13,933 or the 38.2% level. A push above that exposes 14,137 which is the combination of horizontal resistance/support from late-April.

USD/IDR Daily Chart with Negative RSI Divergence

USD/IDR and other ASEAN Currencies Trading Resources:

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

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