Rupiah plunges to 16-year low

Indonesia’s currency fell last week against the greenback to its lowest level since the financial crisis in 1998. USD/IDR has gained over 10% since March, when the rupiah was the strongest this year.

US notes
Source: Bloomberg

After hitting the 16-year high of 12,725, USD/IDR has since pulled back slightly.

A range of factors has intensified the recent weakness in the rupiah.

This includes the seasonal factor where there is growing demand for US currency to settle year-end foreign loan debts.

Rising expectations of a US interest rate hike has also lent some strength to the greenback against currencies from many emerging economies.

While Indonesia’s current account deficit has improved since the last crisis, there has been rising pessimism over its state amid the sluggish global economic outlook.

A key part of Indonesia’s growth is driven by its commodity exports that hinges on China’s economic revival. So far, recent indicators on the Chinese economy have still not shown much traction, with soft data from manufacturing, property and exports.

On a weekly chart, an upward channel formed since April for USD/IDR. An attractive opportunity to buy will be when a pullback brings the pair near the resistance level provided by the lower limit of the channel.

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