USD/IDR Outlook: The outlook is slightly positive, but likely to move sideways, as the rate is just above its recent average and trading near recent lows with no clear driving force.
Key drivers:
• Rate gap: The Federal Reserve is expected to cut rates within the next year, while Bank Indonesia has already lowered its benchmark rate to stimulate growth, which could weaken the rupiah.
• Risk/commodities: Oil prices appear stable, which generally supports both the USD and IDR due to its significance in trade balances and inflation.
• One macro factor: Indonesia's economy remains resilient thanks to strong manufacturing and a trade surplus, but declining foreign inflows into government bonds are concerning.
Range: Movement is likely to hold within the recent 3-month range, without significant volatility anticipated.
What could change it:
• Upside risk: A stronger-than-expected US inflation report could prompt renewed support for the USD.
• Downside risk: Further Bank Indonesia rate cuts could create downward pressure on the IDR.
