Indonesia's rupiah and Malaysia's ringgit led gains among emerging market currencies in Asia on Wednesday (07/10) on the back of capital inflows (triggered by an expected delay in higher US interest rates), better-than-expected Malaysian export data and higher oil prices. The Indonesian rupiah appreciated 2.95 percent to IDR 13,821 per US dollar (Bloomberg Dollar Index), the strongest gain in seven years. Meanwhile, yields on ten- and 15-year Indonesian government bonds fell to 8.710 percent and 8.870 percent, respectively.
Emerging market assets have been rallying after last week's release of weak US economic data (disappointing US non-farm payrolls and US ISM non-manufacturing PMI) triggering expectation that US labour market conditions are not strong enough to cope with an interest rate hike yet. Today, Malaysia's ringgit appreciated 3.51 percent against the US dollar (Bloomberg data), the steepest gain since 1998 as the country posted the largest trade surplus in nine months while global petroleum prices rose (Malaysia is a net oil exporter).
Investors ignored the latest World Economic Outlook Update released by the International Monetary Fund (IMF) which cut its forecasts for global growth in 2015 and 2016 by 0.2 percentage point mainly on continued slowing economic growth in emerging markets.
Over the past three trading days the rupiah has experienced a remarkable recovery from IDR 14,709 to IDR 14,065 per US dollar (Jakarta Interbank Spot Dollar Rate) on relief about a possible delay in the Fed Fund Rate hike. It is also believed that the rupiah's weakening had far overshot its fundamental value (giving rise to a technical rebound). Moreover, actions of Indonesia's central bank (Bank Indonesia) in recent months (using part of its foreign exchange reserves as well as currency swaps to defend the rupiah) proved that the institution will not let the rupiah weaken too far, hence making markets more confident in stability of the rupiah.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 2.20 percent to IDR 14,065 per US dollar on Wednesday (07/10).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Later today, the Indonesian government will announce the third installment of the country's economic policy package. This third installment is mainly aimed at strengthening domestic consumption (possibly by cutting fuel prices and lending rates).
Meanwhile, Indonesia's benchmark stock index (Jakarta Composite Index) climbed 0.93 percent to 4,487.13 points on Wednesday (07/10) as positive sentiments - and capital inflows - persist.
Jakarta Composite Index (IHSG):
Meanwhile, the central bank of Japan left its key interest rate unchanged despite widespread speculation in markets that it would add stimulus in order to boost the sluggish economy.