US Dollar, Indonesian Rupiah, USD/IDR, Coronavirus - Talking Points
- US Dollar has been rallying aggressively against the Indonesian Rupiah
- USD/IDR eyeing most-aggressive monthly gain since the 1997 Asia crisis
- Road ahead may depend on balance between US fiscal stimulus and data
US Dollar Soars, Pushing USD/IDR Further Towards 1998 Peak
The US Dollar has been rallying across the board amid the coronavirus outbreak, especially against currencies from certain developing and ASEAN economies. For example, the Indonesian Rupiah is down about 16.68% against USD so far in March. That means that USD/IDR – after reaching its highest since 1998 – is heading for its most aggressive rise over a month since the 1997 Asia financial crisis. Can this trend continue?
The virus is a highly fluid situation carrying numerous uncertainties. Fear of the unknown is what arguably inspires risk aversion in financial markets. Overall capital outflows departing emerging markets have surpassed totals seen during the 2008 financial crisis. According to Bloomberg, foreign funds have pulled about $6.8b from Indonesian bonds and stocks so far this year. The Jakarta Stock Exchange Composite sits at an 8-year low.
The Bank of Indonesia lowered 2020 GDP estimates to a range of 4.2% - 4.6% after the 7-day reverse repo rate was cut earlier this month. The central bank also launched term repo operations to help boost liquidity. Finance Minister Sri Mulyani Indrawati noted the growth could even grind to a halt on the virus. To further support the economy, Indonesia’s parliament recommended raising the budget deficit cap to 5% of GDP.
When investors choose to prioritize preserving capital over speculating – especially during volatile conditions – they often park their investments into the highly-liquid and haven-linked US Dollar. A $2 trillion fiscal package from the US could offer much-needed relief and bolster sentiment, sending USD/IDR lower. However, that may have to overcome dismal economic data, refueling capital flight and pressuring the Rupiah.
Indonesia Rupiah Heads for Worst Month Since 1997 Asia Financial Crisis
Indonesian Rupiah Technical Analysis
As anticipated, USD/IDR has advanced the dominant uptrend since the end of January. After taking out highs from 2018, the Rupiah is heading for its current record low against the US Dollar at 16850. That was achieved in 1998, 22 years ago. If that price holds as resistance, we may see the pair fall to rising support “1” on the chart below. Down the road, “2” and “3” may come into play in the event of an aggressive turn lower. Otherwise, resuming gains exposes the 61.8% Fibonacci extension at 17155.
USD/IDR Daily Chart
--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
