/IDR: Cyclical Lows In Play Amid Musings Re: Central Bank & Palm Oil Market Dynamics

Spot MYR/IDR printed fresh cyclical lows at IDR3,267 today, which is the pair's lowest point since Jun 10, 2020. The pair has been trending lower since 2020, breaching a long-term trendline support drawn off the 1999 low in the process. The next bearish target is provided by IDR3,244, the low print of Jun 10,2020. Meanwhile, a rebound above Jul 1 high of IDR3,399 would mark the completion of a double bottom pattern, reigniting topside momentum.

• Bank Indonesia's above-forecast 50bp hike to the 7-Day Reverse Repo Rate last month and the reaffirmation of a local version of "Operation Twist" has lent some support to the rupiah, likely facilitating the downward move. BI was a latecomer to the global tightening push, but its recent rhetoric confirmed a pivot towards a more pre-emptive approach.
• Differences in the FX policies of both central banks may have contributed to the slide in MYR/IDR. Bank Indonesia's focus on currency markets and the related interventionist policy stance stands in contrast with the BNM's more hands-off approach. Some analysts flagged that this contrast may increase the ringgit's relative exposure to USD/CNH appreciation.
• Another headwind to the ringgit comes from political uncertainty in Malaysia, with PM Ismail Sabri expected to dissolve parliament anytime from now and lead his party to a contentious election that may be held during the annual flooding season. The snap poll may have disproportional influence on fiscal policy, with the government poised to table Budget 2023 today. Indonesia is not due to hold a general election until 2024.
• Fierce competition for the share of palm oil market provides another potential factor affecting MYR/IDR, with the top two producers trying to drain their overflowing storage tanks. Earlier this week, Indonesia extended its palm oil export levy waiver, which bodes ill for Malaysia's export outlook.