Positive macroeconomic data of Indonesia - involving the significantly lower trade deficit in 2014 and easing inflation - had a good impact on the Indonesia rupiah exchange rate on Tuesday (03/02) although prior to closing the currency somewhat slid after Australia's central bank cut its interest rates causing speculation of further policy easing around the Asia Pacific region in a move to support sluggish growth and avert deflation. Most emerging Asian currencies strengthened on Tuesday against the US dollar on stronger risk appetite.
Based on the Bloomberg Dollar Index, Indonesia’s rupiah appreciated 0.22 percent to IDR 12,657 per US dollar on Tuesday (03/02). The currency strengthened after custodian banks as well as foreign lenders purchased rupiahs ahead of a bond sale later on Tuesday. The Indonesian Finance Ministry targets to sell IDR 12 trillion (USD $952 million) in bonds and expects healthy foreign demand, particularly given the current low yielding environment.
Data from Statistics Indonesia released on Monday (02/02) showed that inflation eased to 6.96 percent (y/y) in January 2015 mainly on lower transportation costs after the government reduced prices for subsidized fuels. Meanwhile, Indonesia’s trade balance improved markedly. Over the whole year of 2014 the country posted a USD $1.88 billion trade deficit, significantly better from the USD $4.08 billion deficit it recorded one year earlier.
Factors that limited the rupiah from appreciating more markedly today were:
• China’s contracting manufacturing industry; China’s HSBC purchasing managers’ index having slightly improved to 49.7 in January, from 49.6 in the previous month, but still indicating contraction;
• Domestic political uncertainty increased due to the battle between the Indonesian Police Force and the Corruption Eradication Commission (KPK); both institutions clashed after the KPK named Indonesian President Joko Widodo’s sole candidate for Police Chief, Budi Gunawan, a suspect in a corruption case. The Indonesian police force reacted by arresting a senior KPK official and investigating the KPK’s chairman. President Widodo refrained from taking a clear stance regarding this case but in an interview on Monday (02/02) Widodo stated that he will decide on resolving the issue later this week;
• Indonesia’s economic expansion in the fourth quarter of 2014 may have fallen to 4.9 percent (y/y) based on a median estimate in a Bloomberg survey, cementing the further slowing growth trend of the economy (since 2011). Official data are due on Thursday (05/02);
• The looming interest rate hike in the USA later this year.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.45 percent to IDR 12,643 per US dollar on Tuesday (03/02).
Meanwhile, Indonesia’s benchmark stock index (Jakarta Composite Index, abbreviated IHSG) gained 0.29 percent to 5,291.72 points on Tuesday (03/02).