Zhitong Finance APP learned that the Indonesian rupiah appears to be ready to test a key support level in the coming months, considering the falling commodity prices, the potential risks of taxing nickel exports and the slow pace of Indonesia's interest rate hikes. The Indonesian central bank raised interest rates earlier than expected last week, but it had little support for the Indonesian rupiah, while the Fed's radical moves easily overshadowed the impact of the Indonesian central bank's 25 basis points rate hike. After holding the 100-day moving average technical resistance level earlier this month, the US dollar-Indonesia Rupiah exchange rate remained on a weaker trend towards 15,000.
Divya Devesh, head of foreign exchange research at Standard Chartered Bank in Singapore in ASEAN and South Asia, said: "As demand for commodities slows down and domestic demand in Indonesia recovers, the deterioration of current account balances will erode a key support for the local currency. Meanwhile, portfolio flows may still face challenges due to concerns about a global recession. I expect that by the end of the quarter, the US dollar against the Indonesian rupiah will rise to 152 million rupiah from 14,818 last Friday."
It is worth mentioning that Indonesia's president Joko Widodo confirmed that Indonesia may impose taxes on nickel exports, which has increased resistance to Indonesia's currency and trade surplus, which is understood to have dropped from 5.1 billion in June to 4.2 billion in July. In addition, the Indonesian central bank's interest rate hike on August 23 was the first time since 2018, far behind the Federal Reserve. The Fed has raised its benchmark interest rate by 225 basis points this year and will raise it by another 50 or 75 basis points at its September meeting.
However, the RBI also said it will continue to interfere with the foreign exchange market, stabilizing the rupiah based on fundamentals, which may ease the weakness of the rupiah. In response, Yanxi Tan, a foreign exchange strategist at Malayan Bank, said that the potential reduction in fuel subsidies may increase the risk of inflation in Indonesia and trigger the Indonesian central bank to take a more radical stance.
But in addition to this, the Indonesian rupiah faces greater negative risks in the near future. The dot chart's forecast for U.S. interest rates next month may be raised, given the recent hawkish comments from the Federal Reserve, which will stimulate U.S. Treasury yields to soar and push up the dollar against the Indonesian rupiah.
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