The Indonesian rupiah exchange rate has appreciated 0.50 percent to IDR 11,779 per US dollar by 16:00pm local Jakarta time on Monday (09/06). This performance is in line with the general trend in Asia where emerging market currencies strengthened against the greenback on today’s trading day. The rupiah is among today’s best-performing emerging currencies as it was boosted by the higher trade surplus of China (one of Indonesia’s most important trading partners) and economic growth in Japan.
Chinese export growth accelerated sharply by seven percent to USD $195.5 billion (year-on-year), while the country’s imports declined 1.6 percent to USD $159.6 billion (yoy). As such, the world’s second-largest economy recorded a trade surplus of USD $35.9 billion in May 2014. Meanwhile, a positive boost was also provided by the 6.7 percentage point growth (yoy) of Japan’s economy in the first quarter of 2014. Japan is Indonesia’s third-largest trading partner in the non-oil & gas sector (after the USA and China).
The official announcement of Indonesia’s rising foreign exchange reserves was also well received by the investor community. On Friday (06/06), it was reported that the central bank’s foreign exchange reserves rose to USD $107.0 billion by the end of May 2014, up from USD $105.6 billion at the end of the previous month.
However, market participants are still cautious ahead of the next Board of Governors’ Meeting of Indonesia’s central bank (Bank Indonesia), scheduled for Thursday 12 June 2014. The outcome of this meeting will shed more light on the central bank’s stance on developments in the Indonesian economy.
Recently, several matters have resulted in negative market sentiments for the rupiah. The April 2014 legislative election showed a fragmented electorate - and thus a fragmented parliament - implying less united political decision making ahead. Furthermore, the presidential race between highly popular Jakarta Governor Joko ‘Jokowi’ Widodo and controversial Prabowo Subianto has become tighter. The market would like to see a clear victory for Jokowi but has started to worry about the narrowing gap between both candidates.
Moreover, Bank Indonesia (the central bank of Indonesia) said that the country’s current account deficit (which has been another major concern to investors as this deficit reached a record high in 2013) may double in the second quarter of 2014. In the first quarter of 2014, the country recorded a current account deficit of USD $4.19 billion, equivalent to 2.06 percent of GDP.
Morgan Stanley believes that the rupiah will reach a year-end level at 12,220 per US dollar.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.27 percent to IDR 11,790 against the US dollar on Monday (09/06).