USD/IDR drifts higher to 15830, focus on Fed rate decision, Indonesian inflation data

• USD/IDR trades in positive territory for the fifth consecutive week on Monday. 
• The market expected the Fed to keep rates steady at a target of 5.25%–5.50% at its January meeting.
• The Fed monetary policy meeting and Indonesian inflation data will be in the spotlight this week. 

The USD/IDR pair gathers strength during the early European session on Monday. The pair currently trades around 15,830 after retreating from a fresh top of 2024 at 15,844. Investors await the Federal Reserve’s (Fed) monetary policy meeting on Wednesday and Indonesia’s inflation report on Thursday for fresh catalysts. 

The Commerce Department showed on Friday that the US Core Personal Consumption Expenditures Price Index (Core PCE) grew by 0.2% on the month from 0.1% in the previous reading and rose by 2.9% on a yearly basis from the previous reading of 3.2%. Meanwhile, the headline PCE, including volatile food and energy, increased 0.2% for the month and held steady at 2.6% on an annual basis. The Federal Reserve (Fed) will announce its interest rate decision at its January meeting on Wednesday. Investors anticipate the Fed to keep rates at 5.25–5.50%. 

Bank Indonesia (BI) kept the interest rate steady on January 17. The move was consistent with efforts to stabilize the Rupiah’s exchange rate and ensure inflation remains within target this year. Indonesia’s central bank targets inflation at a range of 1.5% to 3.5% in 2024, below 2023’s target of 2% to 4%. Investors await the January Indonesian inflation report, due on Thursday. The figure is forecast to show an increase of 0.22% MoM and 2.58% YoY in January. The Core inflation figure is projected to grow 1.83% YoY from 1.80% in the previous reading. 

Apart from this, local media reports that Indonesia’s Finance Minister Sri Mulyani Indrawati could resign prior to the February 14 presidential election have eroded confidence in the rupiah over the past two weeks, casting doubt on the fiscal outlook of the country.

Looking ahead, the Fed Interest Rate Decision will be in the spotlight this week. Investors will take more cues from the press conference after the meeting. The dovish comments from Fed officials might weigh on the US Dollar (USD) and act as a headwind for USD/IDR. Furthermore, the Indonesian inflation data for January will be released on Thursday.