US dollars owned by neighbors in RI stolen, what can the rupee do?

Jakarta, CNBC Indonesia – The rupee was recorded to have weakened against the United States (US) dollar in the first week of 2023. The weakening was not large, by 0.42% to IDR 15,630/US$, but the possibility that the rupee it sharply appreciated was still small this week. The reason is that the supply of US dollars is dry.

When the supply is gone, people are willing to pay more for US dollars, so the value is strong.

The issue of the US dollar’s scarcity has continued to blow over the past few months, as reflected in foreign exchange reserves that were previously in decline when the trade balance ran in surplus for 31 consecutive months.

Based on data from the Central Statistics Agency (BPS) for January-November 2022, the trade balance surplus was recorded at more than $50 billion.

Bank Indonesia (BI) on Friday reported that Indonesia’s foreign exchange reserve position at the end of December 2022 reached $137.2 billion, up $3.2 billion from its November position.

Thus, foreign exchange reserves have increased for 2 consecutive months after declining in the period March-October 2022.

However, this happened in December as the government withdrew foreign loans.

“The increase in the position of foreign exchange reserves in December 2022 was influenced by, among others, tax and services revenues as well as government loan drawdowns,” Bank Indonesia (BI) wrote in its official statement on Friday ( 6/1 /2022).

It can be seen that when the trade balance is in surplus, foreign exchange reserves are actually declining. Exporters place their foreign currency abroad.

BI has also “acknowledged” this, given the steps taken recently to be able to hold Imported Foreign Exchange (DHE) longer in the country.

In its monetary policy announcement last December, BI launched a new tool for foreign exchange (forex) monetary transactions. The tool should be able to repatriate DHE which is mostly parked in Singapore.

In addition, the government also issued global bonds last week, the value of which reached US$3 billion, or the equivalent of about Rs. 47 trillion from the overseas bond market, listed on the Singapore Stock Exchange and Frankfurt Stock Exchange. .

The emission costs are also quite high, because the yield (product) given twice as much as last year.

Global bonds with a 5-year maturity yield 4.80%, a 10-year maturity 5.10% and a 30-year maturity 5.75%.

By way of comparison, for a 10-year benchmark term, the percentage is double that of global bond issuance with a similar term in 2021, which is only 2.2%.

Even though there was pressure from the drying up of the US dollar at home, the external situation gave the rupee a chance to strengthen. Market participants are now considering whether the US central bank (the Fed) will ease the rate of interest rate hikes or whether it can cut interest rates faster.

The reason is that US economic data has started showing signs of slowing down. The Institute for Supply Management (ISM) reported on Friday that the US services sector contracted for the first time in two and a half years.

ISM reports Index of Sales Managers (PMI) services fell to 49.6 from 56.5 the previous month. A reading below 50 is contraction, while above it is expansion.

The US dollar index immediately fell more than 1% during trading on Friday and opened room for the rupee to strengthen.

Technical analysis

Technically, the rupee is still stuck above 15,450 rupees/US$ which will be key to the move.

This level is the 38.2% Fibonacci retracement, extracted from the lowest point on January 24, 2020 at IDR 13,565/US$ and the highest on March 23, 2020 at IDR 16,620/US$.

However, the rupee, symbolized by USD/IDR, managed to break back below its 50-day moving average (moving average 50/MA 50) which obviously offers opportunities for further strengthening.

The stochastic indicator on the daily chart is starting to level out near the oversold area (oversold).

Stochastic it is leading indicator, or indicators that initiate price movements. When the stochastic reaches the region overbought (over 80) or oversold (below 20), then an instrument’s price has a chance to reverse.

The closest support is now in the range of Rp. 15.600/US$ – Rp. 15,590/US$. If it is exceeded, there is a chance for the rupee to strengthen to Rp. 15.550/US$ – Rp. 15,530/US$$.

Garuda currency has an opportunity to rally to the key 15.45 IDR/USD level if it can break down below that level.

Meanwhile, as long as it remains above the support, there is a risk of the rupee weakening from 15,630 rupees/US$ to 15,650 Rp./US$. Further resistance is in the range of Rp. 15,700/US$, before the weakest level in two and a half years of Rp. 15,760/US$.

CNBC INDONESIA RESEARCH TEAM

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