Despite the announcement that Indonesia’s July trade surplus was recorded at USD $1.33 billion, much higher than analysts' forecasts and constituted the country’s sixth consecutive monthly trade surplus, the rupiah continued to weaken most of the day. The trade surplus caused no positive sentiments on today’s trading day, in fact the opposite, as export and import data continue to show worrying signs. Indonesia’s July exports fell 19.2 percent (y/y) to USD $11.4 billion, while imports plunged 28.4 percent (y/y) to USD $10.1 billion, implying that both global economic activity and domestic economic activity have decreased.

After touching a 17-year low of IDR 13,858 per US dollar in the afternoon, the rupiah closed at IDR 13,800 as it experienced a steep recovery in the last few minutes before closing. As such, the rupiah ended the day 0.16 percent stronger (Bloomberg Dollar Index). Perhaps the rupiah was also somewhat supported by Bank Indonesia’s decision to maintain its key interest rate at 7.50 percent during today’s Board of Governor’s meeting. Despite curtailing the country’s economic growth, the central bank maintains a relatively high interest rate as it wants to guard the rupiah against high volatility (caused by looming higher US interest rates and devaluation of China’s yuan) and to combat high inflation.

Furthermore, Bank Indonesia Governor Agus Martowardojo told reporters that the central bank agreed to tighten rules on foreign currency purchases in a bid to stabilize the rupiah. Those who purchase foreign currencies worth over USD $25,000 per month now need to provide details to authorities. Previously, the boundary was at USD $100,000 per month.

Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.49 percent to IDR 13,831 per US dollar on Tuesday (18/08).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Pressures on the rupiah also rose as investors are waiting for the release of the Federal Reserve’s July FOMC minutes, scheduled to be released on Wednesday (19/08), or in the early morning of Thursday (20/08) local Indonesian time. Ahead of the release of FOMC minutes, the US dollar usually tends to appreciate against most other currencies as investors are cautiously awaiting news regarding looming higher US interest rates. Many analysts expected the Federal Reserve to raise interest rates in September 2015. However, as US GDP growth was a bit disappointing in the first half of 2015, while China’s decision to allow yuan devaluation caused worldwide volatility in financial markets, some analysts have become less convinced about a September US interest rate hike.

A weaker yuan and lower commodity prices drag down the value of emerging market currencies. China allowed its yuan to weaken in order to boost the country’s export performance. This means that other emerging markets would prefer a weaker currency in order to keep their export products competitive on the international market.

Meanwhile Indonesia’s benchmark stock index (Jakarta Composite Index) fell 1.63 percent to 4,510.48 points on Tuesday (18/08). The index has now weakened around 22 percent from its peak in April 2015.

Jakarta Composite Index (IHSG):

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