USD/IDR: Under pressure ahead of Indonesia inflation data

• USD/IDR again steps back from 50-day SMA prior to the key data.
• USD bears seem to catch a breath after four consecutive days of declines.
• Trade headlines, US employment data join Indonesia Inflation to direct near-term pair moves.

While taking more negatives from the US-China trade pessimism than the broad USD weakness, USD/IDR registered gains on Thursday. However, the same fail to cross 50-day Simple Moving Average (SMA) as the pair currently declines to 14,082 during early Friday in Asia.

The US Dollar (USD) recently weakened across the board, except few Asian counterparts, as the Federal Reserve’s (Fed) third consecutive rate cut superseded the United States' (US) central bank’s efforts to tame bears.

The reason for Asian currency to surrender against the greenback could be their heavy reliance on China. The dragon nation is not in good trade terms with the US, as we all know, but is struggling to close the “Phase One” deal, the odds of which have recently been dropped. Also, the latest official Manufacturing Purchasing Managers Index (PMI) added doubts over the future positive concerns of the world’s second-biggest economy, China.

In a case of the Indonesian fundamentals, the Bank Indonesia (BI) recently announced fourth rate cut since July 2019 while lowering growth forecasts amid concerns of weakening consumer and retail purchases. “Going forward, BI stated that the course of monetary policy actions would be data-dependent, including the development in the global and domestic economy. Monetary policy actions, according to BI, would entail not only the lowering of the benchmark interest rates, but also including the lowering of the reserve requirements, and other macro-prudential measures,” says E.Tanuwidjaja, Economist at UOB Group.

Investors now prepare for October month Inflation and Core Inflation numbers from Indonesia ahead of all-important employment data from the US. TD Securities hold a bit a dovish bias for today’s Indonesian Inflation as they say, “CPI is expected to continue to ease, to 3.28% y/y in October from 3.39% previously, remaining comfortably below the mid-point of Bank Indonesia's target range. Last month the drop in CPI was driven by a sharp drop in food prices and we expect food prices to continue to decline, as they reverse strong gains previously. Transport costs are also likely to remain soft. One wildcard is clothing which has risen to its highest annual rate in 7 years.”

Technical Analysis

Unless providing a daily closing beyond 50-day Simple Moving Average (SMA) level of 14,120 prices are less likely to aim for a three-week-old falling trend line at 14,155 and October top around 14,275. Alternatively, 14,000, 13,970 and 13,880 are the key supports to watch during pair’s additional weakness.