The Indonesian rupiah continued its downward trend, falling to its lowest level since August 7, ahead of the central bank decision. The USD/IDR exchange rate was trading at 16,095, up by 6.83% from its lowest point this year.

Indonesia’s central bank decision

The USD to IDR exchange rate continued its strong rally ahead of the Bank of Indonesia interest rate decision. This will be a crucial meeting since it will be the last one of the year, and it will set the tone for what to expect in 2025.

The Bank of Indonesia delivered a surprise interest rate cut in September when it slashed them by 0.25% to 6.0%. It has maintained rates unchanged in the last three meetings, and analysts expect it to do the same on Wednesday.

This decision comes at a time when the Indonesian economy is showing signs of slowing down. The most recent data showed that the economy expanded by 4.95% in the third quarter, slightly lower than what analysts were expecting. It grew by 1.5% on a QoQ basis, also lower than the expected 1.59%.

This slowdown was mostly because of the household sector, which makes up about half of the GDP. Household spending rose by 4.91%, while corporate investments grew by 5.15%.

The government is working to boost this spending. It has implemented some tax breaks for property sales, to support personal spending.

On the positive side, Indonesia’s inflation rate has continued doing well in the past few months. The most recent data showed that the headline Consumer Price Index (CPI) slowed to 1.58% in November, its lowest level since 2021. It has dropped from almost 6% in 2022.

Federal Reserve interest rate decision

The USD/IDR exchange rate has also surged ahead of the upcoming Federal Reserve interest rate decision. Unlike the Bank of Indonesia, analysts expect the Fed to slash interest rates as it works to salvage the deteriorating labor market.

Data released earlier this month showed that the unemployment rate rose from 4.1% in October to 4.2% in November. The participation also dropped even as the economy added over 200k jobs during the month.

The Fed, however, will likely have a hawkish tilt because of the stubbornly high inflation and the fact that some of Trump’s policies are highly inflationary. Data showed that the headline Consumer Price Index (CPI) rose to 2.7% in November, while the core CPI remained at 3.3%.

The USD/IDR has also jumped in sync with the ongoing weakness in the emerging market currencies following Donald Trump’s election. Trump has threatened major tariffs on most imports, a move that may slow the global economy.

USD/IDR technical analysis

USD/IDR chart by TradingView

The daily chart shows that the USD to IDR exchange rate has been in a strong uptrend in the past few months. It has risen to 16,100, its highest level since August 7. The pair recently formed a golden cross pattern as the 200-day and 50-day Exponential Moving Averages (EMA) crossed each other.

The pair recently crossed the key resistance at 15,970, its highest swing on December 4. It is also nearing the 78.6% Fibonacci Retracement level. Therefore, the pair will likely continue rising as bulls target the next key resistance point at 16,200.

The alternative scenario is where the pair drops and retests the support at 15,970 and then resumes the uptrend. This situation is known as a break and retest and is one of the most popular continuation signs.

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Gold price has held steady above the crucial resistance-turn-support zone of $2,600 per ounce after momentarily dropping below it in mid-November. While the bulls remain in control, the bullion appears set for range-bound trading in the near term. 

In addition to the festivities mood that appears to lower trading volumes, gold price is under pressure from a stronger US dollar and rising Treasury yields. Even so, fresh tensions between Israel and Syria are supporting this conventional safe haven. This is in addition to China’s recent gold purchases after a 6-month hiatus. At the time of writing, the precious metal was trading at $2,647 an ounce; down by over 5% from the all-time high it hit in late October.

Rising Treasury yields weighs on the non-yielding bullion

The benchmark 10-year US government bond yields have been in the green for a week now; weighing on gold price while bolstering the US dollar. At 4.41%, the Treasury yields are trading close to the 6 month high it hit in mid-November at 2.50%. Higher Treasury yields tend to increase the opportunity cost of holding the non-yielding bullion. Furthermore, higher yields tend to boost the US dollar. 

The surge in Treasury yields has been fueled by investors’ expectations of a 25 basis points rate cut during the Fed’s last policy meeting this year. This will be the third consecutive interest rate cut after the central bank announced cuts of 50 and 25 basis points in September and November respectively. 

Beyond December’s rate cut, investors expect to US central bank to embrace a rather hawkish tone moving forward. Indeed, it is these expectations that have investors hesitant to make major moves ahead of Wednesday’s FOMC statement. Earlier in December, Jerome Powell indicated that the stability of the US economy allows the Fed to be more “cautious” in its interest rate cuts. 

Besides, analysts are concerned that Trump’s policies will increase inflation thus pushing the central bank to pause on its easing cycle. Ordinarily, gold price thrives in an environment of lower interest rates. 

Geopolitical tensions, PBoC’s purchase limits losses

Despite the pressure exerted on gold price, the purchases made by China’s central bank have sustained the bullion above $2,600. The People’s Bank of China increased their gold reserves by 160,000 fine troy ounces in November after pusing on the purchases for six months. Prior to the hiatus, PBoC had been accumulating their gold holdings for 18 months in a row; a move that further fueled the precious metal’s bull run. 

Interestingly, the resuming of China’s purchases coincided with the asset’s rallying to a fresh record high. This indicates the central bank’s commitment in strengthening its reserves and guarding against Yuan’s depreciation. Indeed, the growth of gold reserved by various central banks across the world has been one of the factors boosting gold prices in 2024. 

Besides, persistent conflicts in the Middle East and Eastern Europe have sustained safe haven demand in recent months. From Russia’s updated nuclear doctrine to the recent toppling of Syria’s President Bashar Assad, gold price continues to find support in its status as a conventional safe haven. 

Even so, its safe-haven demand has been curbed by the fact that the US dollar is also a preferred store of value in times of economic and geopolitical uncertainties. In turn, a stronger greenback makes the precious metal more expensive for buyers with foreign currencies. 

Gold price forecast

The daily chart shows that the price of gold topped at $2,790 in November and has dropped to $2,650 after Donald Trump’s election. It has now consolidated at the 50-day and 25-day Exponential Moving Averages (EMA).

Gold has also formed a double-top pattern at $2,725. A double-top pattern is one of the most bearish signs in the market. Therefore, there is a likelihood that it will have a bearish breakout after the Fed decision. If this happens, gold may drop to the next key support level at $2,538, its lowest level on November 14.

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The Vanguard High Dividend ETF (VYM) has retreated in the past few days, falling by over 3.2% from its highest level this year. It was trading at $130.78, its lowest level since November this year. 

Other dividend ETFs like the Schwab US Dividend Equity (SCHD), iShares Core High Dividend ETF (HDV), and the WisdomTree US High Dividend Fund (DHS) slumped. 

VYM ETF is a top dividend ETF

VYM is one of the biggest dividend ETFs in the market with over $76.48 billion in assets under management. It offers its investors a dividend yield of about 2.75%, which it has grown in the last 13 consecutive years. Its compounded annual growth rate in the last five years was about 5.32%.

It is debatable whether a fund like VYM should be called a dividend ETF because of the relatively low yield. For example, the Vanguard S&P 500 index, which is not widely seen as a dividend fund, has a yield of about 1.4%. 

The VYM fund tracks the FTSE High Dividend Yield Index, which tracks companies that are known for having a high dividend yield. It holds 537 companies and has a price-to-earnings ratio of 21.2. Its average earnings growth rate is about 10.4%, higher than that of the S&P 500 index.

The VYM ETF is mostly made up of companies in the financials industry, which make up about 23.2% of the fund. It is followed by companies in the industrials, consumer staples, consumer discretionary, and energy sector. 

This composition explains why its total return has lagged behind that of other EFs like those that track the S&P 500 and the Nasdaq 100 indices. These funds are mainly made up of technology companies that have a long track record of growth.

Top Vanguard High Dividend ETF companies

The biggest companies in the VYM ETF are Broadcom, JPMorgan Chase, ExxonMobil, Home Depot, Procter & Gamble, Walmart, and Johnson & Johnson. These are all top blue chip companies that have a commanding market share in their respective industries. 

For example, Broadcom has become the latest company to move into the $1 trillion club. It did that by becoming a major supplier of semiconductors and through acquisitions. The most recent buyout was VMware, a company that offers cloud computing software.

JPMorgan Chase is the biggest American bank that is known for its fortress balance sheet, while Exxon is the largest oil and gas company in the United States. 

The other top companies in the VYM ETF are Wells Fargo, Coca-Cola, Cisco Systems, McDonald’s, and Goldman Sachs.

Is the VYM ETF a good investment?

We believe that the VYM ETF has demonstrated that it does well. For example, its stock has jumped by 150% from its lowest point during the pandemic. 

However, there are a few concerns about this fund. First, it has a low dividend yield, which invalidates its role as a dividend fund. Besides, short-term government bonds are offering a higher return. The 10-year and 30-year bonds offer a return of over 4%. These bonds, however, don’t offer the price return that VYM provides.

Second, the VYM ETF’s total return has lagged behind the top benchmarks for a long time. The total return is a figure that looks at an asset’s price return and dividend payouts. We believe that the total return is the most important number to consider when investing. 

The VYM ETF has had a total return of 63% in the last five years, while the S&P 500 and Nasdaq 100 indices have jumped by 104% and 164%, respectively. The same trend has happened this year as the fund has jumped by 19.6%, while the Nasdaq 100 is up bu 31%.

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The Indian rupee slump gained steam this week as the USD/INR exchange rate rose to a record high of 84.91. It has risen by over 2.7% from its lowest level this year and almost 20% in the last five years. 

Potential India interest rate cut

The USD/IDR exchange rate has soared as investors anticipate an interest rate cut in the next few meetings. Hopes of a cut increased after the government replaced the relatively hawkish Shaktikanta Das as the central bank governor. He was replaced by Sanajay Malhotra, the Finance Minister.

Analysts believe that Narendra Modi replaced Das for his hawkish tendencies. Unlike other central banks, the RBI has emerged as one of the most hawkish this year. It has refused to cut interest rates, a move that it has defended citing the rising inflation rate in the country.

The most recent data showed that the headline Consumer Price Index (CPI) slowed from 6.2% in October to 5.48% in November. Still, that CPI figure was higher than the year-to-date low of 3.54%.

Analysts believe that India’s inflation rate will remain above 5% for a while because food prices remain stubbornly high. Despite this, the market anticipates that Malhotra will cut rates as soon as in January because of the ongoing economic softness.

Recent economic data showed that the Indian economy slowed in the third quarter. It expanded by just 5.4%, missing the median estimate of 7%. Therefore, India will likely not meet its 7% growth target, a move that has partially been blamed to higher rates in the country.

The indian rupee softness mirrors that of other emerging market currencies. For example, the Indonesian rupiah has slumped to 16,100, its lowest point since August. Similarly, the South African rand, often seen as a bellwether for emerging markets, dropped to 18, its lowest level in weeks.

These emerging market currencies have fallen because of the recent Donald Trump election and its potential implications. Trump has vowed to deport millions of illegal immigrants and impose large tariffs on imports.

Federal Reserve rate cut

The USD/INR exchange rate has also continued rising ahead of the upcoming Federal Reserve interest rate decision. 

Economists expect that the bank will slash rates as it continues to engineer a soft landing for the economy. 

It has already slashed rates by 0.75%, and experts see it cutting by 0.25%, bringing the total cuts this year to 1%. The Fed is cutting rates in a bid to boost spending and improve the labor market as the unemployment rate has risen to 4.2%.

Still, the Fed is also more concerned about inflation, which has remained stubbornly high. Recent data showed that the core inflation, which excludes the volatile food and energy prices remained at 3.3%, much higher than the 2% target.

The Fec is also concerned that some of Donald Trump’s policies will stir inflation in the country. It cites the upcoming tariffs, which will increase the prices of most items in the country.

USD/INR technical analysis

The weekly chart show that the USD to INR exchange rate has been in a slow uptrend in the past few years. Most recently, the pair has risen in the last seven weeks after the change in India’s central bank.

The pair has jumped above the upper side of the rising wedge chart pattern. A wedge is made up of two ascending trendlines that concierge. 

Also, oscillators like the MACD and the Relative Strength Index (RSI) have continued rising. Therefore, the pair will likely stabilize around the resistance at 85. A strong bearish breakout cannot be ruled out in 2025 because of the wedge chart pattern. 

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Applied Materials stock price has nosedived and moved into a technical bear market after falling by over 33% from the highest point this year. AMAT was trading at $170, its lowest level since February 5, meaning that it has largely erased most of the gains made earlier this year. So, is Applied Materials a good stock to buy today?

Applied Materials stock price analysis

The weekly chart shows that the AMAT share price peaked at $260 earlier this year, and then suffered a harsh reversal, as we predicted. It has moved below the 23.6% Fibonacci Retracement level at $201. Most recently, the stock is approaching the 38.2% retracement point at $168. 

It has also moved below the 50-day and 25-day Exponential Moving Averages (EMA), which have made a bearish crossover pattern. Also, it formed a small head and shoulders-like chart pattern, a popular bearish reversal sign.

The MACD of the Applied Materials stock has moved below the zero line, while the Relative Strength Index (RSI) indicator has tilted downwards and moved below 50. The stock is approaching the crucial support at $162.95, its highest point in January 2022 and the upper side of the double-top pattern.

Therefore, there are signs that the AMAT stock wants to form a break and retest chart pattern. That is a situation where an asset goes back and retests a crucial support level and then resumes the uptrend. It is one of the most popular continuation signs.

Therefore, in this case, a strong bullish breakout cannot be ruled out in the near term. However, a drop below the support at $162 will invalidate the bullish view and point to more downside, potentially to the 50% Fibonacci Retracement point at $141.35. 

AMAT stock chart | Source: TradingView

Why AMAT shares crashed

For starters, Applied Materials is a large technology company in the semiconductor industry that manufactures products used by some of the top companies. Its semiconductor systems solutions include things like epitaxy, Ion Implant, Rapid Thermal Processing, Chemical Mechanical Planarization, and Atomic Layer Deposition.

The company’s Applied Global Services division provides fab consulting, subfab equipment, automation software, and other technology-enabled services. It is also a big player in the display and adjacent markets industry. 

Applied Materials stock continued its downtrend after the company published its recent financial results. Its revenues rose from $6.7 billion in Q4’23 to $7.045 billion in the last quarter. It also expanded its gross margins a bit. 

However, Applied Materials’ net income dropped from $2 billion to $1.7 billion as its operating margin fell to 29.3%. 

For the year, the company’s revenue rose by 2% to $27.2 billion, helped by its semiconductor division, which made $19.9 billion. Applied Global Services revenue rose by 9% to $6.2 billion.

Therefore, the AMAT stock price has dropped as investors anticipate further slowdown as the artificial intelligence industry starts to peak. Analysts expect that the revenue for this quarter will be $7.17 billion, a 6.90% increase from the same quarter last year. The annual revenue is expected to be $29.42 billion.

The stock has also dropped because the semiconductor industry is highly cyclical. The recent demand has fueled more production, which could see companies have more inventories in 2024. Also, there are signs that AI investments are slowing. 

Fortunately, Applied Materials stock has become a bargain as it trades at a forward price-to-earnings ratio of 17.57 and a trailing multiple of 19. These are smaller numbers compared to the S&P 500 index has a multiple of over 20. 

The other benefit is that Applied Materials has become a good dividend company. It has boosted its payouts in the last seven years and has a low payout ratio of 17.5%. Therefore, it will become viable to buy the Applied Materials stock dip at some point. Read more: Applied Materials (AMAT) stock: here comes the death cross

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