USD/PHP, USD/IDR Talking Points
- USD/PHP extended uptrend as BSP outlined cuts to bank reserve ratios
- USD/IDR may fall to support as the Bank of Indonesia guards the Rupiah
- US-China trade war fears a fundamental risk for ASEAN currencies ahead
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BSP Cuts Bank Reserve Ratios as Philippine Peso Weakens
Overnight, the Philippine Peso depreciated as its associated central bank, the Bangko Sentral ng Pilipinas (BSP), took efforts to cut bank reserve requirement ratios (RRR). Last week, the absence of said measures when the BSP cut benchmark lending rates resulted in gains in the PHP as Governor Benjamin Diokno left off discussions on this matter for this week.
In short, the Philippine central bank outlined to cut RRRs by two percentage points from 18% to 16% in batches. A cut to 17 percent will take effect on May 31, followed by a 0.5 percentage point cut on June 28 and then another 0.5 on July 26. These policies are another way for a central bank to stimulate an economy, effectively opening up a greater pool of capital for banks to lend out.
USD/PHP Technical Analysis
Weakness in the Philippine Peso helped push USD/PHP to the upside after testing the near-term rising support line from early May. This came with pushing above late-April highs at 52.37, leaving the pair under resistance at 52.55.
Keep in mind that the near-term uptrend picked up pace after clearing a descending channel of resistance (pink parallel lines below). If gains extend, the pair may find itself testing the psychological barrier between 52.87 and 53.03 thereafter.
USD/PHP Daily Chart
Chart Created in TradingView
Bank of Indonesia Leaves 7-Day Reverse Repo Rate Unchanged
Meanwhile, on Thursday the Bank of Indonesia left its 7-day reverse repo rate unchanged at 6.00% as anticipated. This is also as opposed to cuts from the Philippine central bank and the Bank of Malaysia last week. After the monetary policy announcement, the Indonesian Rupiah managed to gain ground against the US Dollar despite the latter climbing versus its major peers.
As anticipated in this week’s ASEAN fundamental outlook, the Bank of Indonesia reiterated efforts to guard the Rupiah ‘in line with the fundamentals’. It added that it will also be consistent in guarding prices.
Some downside risks it highlighted were increased uncertainty in financial markets alongside slowing global economic improvement. While the central bank said that policy is cautious and neutral, it will closely watch domestic conditions when it comes to considering easing.
USD/IDR Technical Analysis
Efforts to uphold the Rupiah resulted in USD/IDR leaving behind a Shooting Star candlestick. This is a sign of indecision in the pair’s dominant uptrend from late April which picked up pace after breaching the falling trend line from the end of 2018. With that in mind, keep an eye on the near-term rising support line (red line below) which may be tested next given the technical signals.
USD/IDR Daily Chart
Chart Created in TradingView
With that in mind, ASEAN currencies such as the IDR and PHP are still vulnerable to the volatility that may come with simmering US-China trade tensions that threaten global economic growth. Particularly, the US Dollar’s unrivaled liquidity status makes it a prime candidate for gains in times of market distress as sentiment-linked assets weaken across the board.
ASEAN FX Trading Resources
— Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter