USD/IDR: External headwinds keep upside risks – OCBC
OCBC’s Christopher Wong reports USD/IDR briefly traded back towards 18,000 as higher Oil prices, elevated US Treasury yields and a firm Dollar weighed on the Indonesian Rupiah. Bank Indonesia has shifted intervention toward NDF and DNDF, seen as more effective and less reserve-intensive.
OCBC's Christopher Wong notes that the USD/IDR briefly dipped back towards 18,000 due to higher oil prices, elevated US Treasury yields, and a strong dollar weighing on the Indonesian Rupiah. Bank Indonesia has been focusing on using NDF and DNDF for intervention, which they believe to be more effective and less reserve-intensive than previous methods.
OCBC warns that structural external pressures and a less favorable environment may continue to skew risks in favor of further gains for the USD/IDR pair. Bank Indonesia Governor Destry Damayanti revealed that the central bank has reduced spot intervention to approximately 30% of its total FX interventions, with a greater reliance on offshore NDF and domestic DNDF, which are less reserve-intensive and deemed more effective by BI.
While this may not imply a step back from stabilizing the IDR, it represents a shift in the intervention strategy. In the near term, unfavorable external conditions, such as US Treasury yields, oil prices, and the dollar, may continue to negatively impact the IDR. For the IDR to stabilize more convincingly, some easing in these external pressures is required.
Currently, the USD/IDR pair is trading near 17,975 levels, with a bullish momentum intact on the daily chart, while the RSI has climbed into near overbought territory. Risks remain tilted to the upside.
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