Indonesia's Rupiah Performing Well Today against US Dollar. Why?
Indonesia's rupiah currency is performing remarkably well today. By 13:20 pm local Jakarta time the rupiah had appreciated 0.75 percent to IDR 12,943 per US dollar (Bloomberg Dollar Index). There are several factors that are pushing the rupiah in a stronger position. Enny Sri Hartati, economist at the Institute for Development of Economics and Finance (Indef), informed that capital inflows are the result of the government's tax amnesty program and rising foreign direct investment (FDI). Meanwhile, there is the impact of the US presidential debate.
First (of three) Presidential Debates in the USA
This morning (Asian time-zone) the first debate between presidential candidates Hillary Clinton (Democrats) and Donald Trump (Republicans) was staged. It was a heated debate about the economy, tax, protectionism, and race. Both sides did not hesitate to attack on each others weak spots (including matters such as Clinton's deleted emails and Trump's tax declarations). Although polls are still coming in, the initial reaction from markets seems to indicate that Clinton has won the first debate (if so, it surely is a narrow victory).
Suggestions of a Clinton victory causes short-term investors' appetite for riskier assets, including emerging market assets. Interestingly enough, the Mexican peso strengthened significantly against the US dollar during - and after - the debate. Trump has repeatedly stated that he wants to overhaul the US immigration policy and pledged to build "a wall" between Mexico and the USA. Therefore, investors and analysts were eyeing the performance of the peso in order to detect the markets' verdict on the debate. A stronger peso indicates that markets believe Clinton is in charge.
Lastly, it is interesting to add that both Trump and Clinton are the least liked White House candidates in modern history according to opinion polls.
Meanwhile, given that the US Federal Reserve remains dovish (implying that it is not to eager to implement an interest rate hike), the US dollar tends to weaken.
Tax Amnesty Program Indonesia
After a weak start in July and August the government's tax amnesty program has gained momentum in September 2016. Up to 26 September nearly 8,500 new taxpayers were added to the country's tax database. New and existing taxpayers declared a total of IDR 1,950.6 trillion (approx. USD $149 billion) in unreported assets under the program so far, including IDR 98.9 trillion worth of repatriated assets. The Indonesian government received about IDR 46.5 trillion in additional tax as a result of the tax amnesty program. Fund repatriations, however, remain sluggish, possibly caused by more attractive tax tariffs offered in the so-called tax havens. The program runs until 31 March 2017.
Bank Indonesia's benchmark rupiah rate (the Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.38 percent to IDR 13,027 per US dollar on Tuesday (27/09).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Meanwhile, Indonesia's benchmark Jakarta Composite Index (IHSG) climbed 0.43 percent to 5,378.22 points by 14:15 pm local Jakarta time on Tuesday (27/09). Throughout the morning this benchmark index had been in the red zone. However, in line with the majority of other markets in the Asian region assets climbed as more and more media are reporting that Clinton won the debate.
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