In line with other markets in Asia, Indonesian stocks and the rupiah continued to rally on Tuesday (07/06) supported by the cautious words of Federal Reserve Chair Janet Yellen in a speech on Monday. Meanwhile, higher commodity prices boost the outlook for those commodity-exporting economies (including Indonesia). Indonesia's benchmark Jakarta Composite Index rose 0.78 percent to 4,933.99 points, while the Indonesian rupiah appreciated 0.80 percent to IDR 13,263 per US dollar (Bloomberg Dollar Index).
During a speech in Philadelphia, Federal Reserve Chairwoman Janet Yellen said she sees US rates rising gradually but did not give any indication for a precise timing of another interest rate hike. Overall, her assessment of the US economy was upbeat. Markets interpreted these statements as "dovish" and therefore higher-yielding, yet riskier, emerging market assets were popular items today. Odds for a June or July Fed Funds Rate hike have diminished significantly now, particularity after data from the US Labor Department showed that only 38,000 jobs were added to the US economy in May 2016, the lowest monthly figure since September 2010.
Meanwhile, commodities entered a bull market on Tuesday (07/06), especially supported by rising prices of soy, zinc and crude oil. Oil prices again passed beyond the USD $50 per barrel level, near their highest level in ten months. Rising commodity prices have given a real boost to investor sentiment.
All in all, it should mean that there is room for further strengthening of Indonesia's Jakarta Composite Index and the rupiah in the days ahead, although profit taking remains a serious threat. Another scenario that could suddenly reverse capital flows into emerging markets would be sudden hawkish statements made by Federal Reserve officials.
Bank Indonesia's benchmark rupiah rate (the Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.76 percent to IDR 13,375 per US dollar on Tuesday (07/06).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Indonesia's Finance Ministry informed on Tuesday (07/06) that it sold IDR 18 trillion (approx. USD $1.4 billion) worth of bonds at an auction, above the indicative target at IDR 12 trillion.