IDR rate. Forecast for Indonesian rupiah price

April 28, 2020

IDR rate. Forecast for Indonesian rupiah priceMikhail Hypov

**Indonesian rupiah: fundamental analysis, technical analysis,

COVID-19, trend analysis, actual scenario.**

Today we’re analysing the situation in Indonesia and the impact of coronavirus on this country and its national currency, the Indonesian rupiah.

Economy of Indonesia

Indonesia is the largest island country: its territory includes 17,804 islands. The most popular tourist island is perhaps Bali and the most populated one - Java. The country’s population amounts to over 212 million people. Thirty-five million people belong to the agglomeration of Jakarta, the capital of Indonesia, which makes it the world’s second most populated capital after Tokyo.

The industrial sector has developed greatly in the past decades, but the agricultural sector is still important to the economy of the country. It accounts for 14% of GDP and provides jobs to 41% of working population. As an export-oriented state, Indonesia tops up its budget through exporting agricultural and mineral resources, which make up 40% of total exports.

The main exported agricultural products are rice, tapioca, peanuts, natural rubber, cacao, coffee, copra, poultry meat and eggs. The king of agricultural exports is palm oil: Indonesia is the world’s leading palm oil producer. Coal makes up 10% of Indonesian mineral exports. The country is the third biggest coal producer. Also, Indonesia exports oil and gas for processing and domestic consumption since its developing industry requires lots of energy resources. The country left OPEC in 2008 and became an oil importer. Also, Indonesia has been increasing the production and exports of metals and metallic ore: bauxites, tin and copper. Before the crisis, exports of microelectronics and machinery construction were growing too, accounting for 9.6% of the country’s total exports by the end of 2017.

![LiteForex: IDR rate. Forecast for Indonesian rupiah price][1]

For more details, check the map of Indonesian exports provided above (the source is [here][2]).

![LiteForex: IDR rate. Forecast for Indonesian rupiah price][3]

The main importers of Indonesian production are China, Japan, India and Singapore. The Asian region accounts for 68% of Indonesian exports. Thirteen percent of production goes to North America, with 11% going directly to the USA.

COVID-19 in Indonesia

![LiteForex: IDR rate. Forecast for Indonesian rupiah price][4]

The first coronavirus case was confirmed on 2nd March in Jakarta. As you can see, the highest number of confirmed cases has been registered in the agglomeration of Jakarta so far. The government started taking some measures, which can’t be called radical, only 11 days later.

On 13th March, all primary schools in Jakarta were closed. The Indonesian coronavirus task force was set up.
On 15th March, Indonesian president Joko Widodo called for social distance. Tax authorities extended filing dates up to 30th April.
On 16th March, the Ministry of State Owned Enterprises allowed employees aged 50 or over 50 to work from home. At the same time, the president didn’t introduce a total lockdown and said that local lockdowns had to be approved by the central government.
On 19th March, the Central bank of Indonesia decided to cut the rate to 4.5% in order to help economy.

As you see, these measures are quite soft.

Joko Widodo declared COVID-19 a “national disaster” only on 13th April. At least 4557 people had been infected and 399 people had died by that moment. The fact that 87.2% of the population is highly religious and mosques hadn’t been closed aggravated the situation.

The Ramadan month was to begin on 23d April and the government faced a hard choice.

On 21st April, the president banned intercity travel by bus or trains and sea transportation. He urged citizens to stay home and cancel traditional visits during holidays. Perhaps, it was one of the toughest anti-coronavirus measures.

![LiteForex: IDR rate. Forecast for Indonesian rupiah price][5]

In the end, the situation got out of control as we can see it in the chart above. Indonesia’s daily rise in new COVID-19 cases is currently the highest in the world. The government is criticized for belated and too soft measures. Responsibility for decision making lies with local authorities because assessing the situation is easier for them. A total lockdown and quarantine haven’t been imposed yet.

High mobility is the peculiarity of the workforce in Indonesia. Many people work abroad or move for work from provinces to Jakarta. Migrants’ comebacks may contribute to the spreading of COVID-19 even if intercity travel has been suspended. The economic aftermath is still to be estimated: the country is at the early stage of the epidemic. Considering the virus spread dynamics and population density, the after- effects may be hard.

Indonesian rupiah

In contrast to [Iran][6] where the national currency’s rate is controlled by the government, the Indonesian rupiah is traded at a free market rate. What the Central Bank of Indonesia only does is targeting inflation based on the market methods of developed economies.

![LiteForex: IDR rate. Forecast for Indonesian rupiah price][7]

The whole history of IDR/USD trading is shown in the chart above, starting with the economic crisis of 1997-1998. The Central bank’s skilful monetary policy helps hold the national currency in a range limited by the peak of 16,850 IDR.

Actual scenario

![LiteForex: IDR rate. Forecast for Indonesian rupiah price][8]

We can see the record fast devaluation of the IDR in the weekly chart above. It lost 23% in just 2 months, from the end of January to the end of March. Then it retraced from the historic level of 16,850 IDR marked in red above. Indicators show that the currency is oversold and this fact has been already won back by the last correction. There are no signs of a trend reversal, so we are likely to witness a retest of the historical maximum of 6,850 IDR. Actually, the rate started collapsing one month before the first coronavirus case was confirmed. It shows that external markets have a big impact on the export-oriented Indonesian economy. The chart above shows the most realistic scenario: the Indonesian government will be fighting the after-effects of the pandemic the whole year of 2020 and, most likely, 2021.

![LiteForex: IDR rate. Forecast for Indonesian rupiah price][9]

Amid falling prices of the main exported products - palm oil (see chart above) and coal (see chart below), the country will face economic problems not only during the pandemic, but also after it.

![LiteForex: IDR rate. Forecast for Indonesian rupiah price][10]

To conclude, I can say that the historical maximum will be most likely updated in Q3/4 of 2020. The nest maximum may be located near the next important psychological level of 20,000 IDR, which corresponds to level 2.618 of the first growth wave in 2017-2019.

Time will show the way it will be. I’ll continue sharing my ideas here.

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I’d like to remind you that all materials are provided for educational purposes only. They aren’t financial advice and don’t guarantee any profits. All trading decisions you make are your responsibility only.

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Yours,

Michael @Hypov

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![IDR rate. Forecast for Indonesian rupiah price][13]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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