After Federal Reserve Chairwoman Janet Yellen indicated that the US central bank will be patient in raising the interest rate environment in the world’s largest economy, Indonesian assets gained on Wednesday (25/02). Both the benchmark Jakarta Composite Index and rupiah exchange rate strengthened 0.51 percent yesterday. Apart from increased speculation that the Fed will not raise interest rates before summer, expectation that Greece will avoid a disastrous default brought more positive market sentiments.

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Indonesia’s rupiah depreciated to its lowest level since mid-December 2014 nearly touching the psychological level of IDR 13,000 per US dollar ahead of Federal Reserve Chairwoman Janet Yellen appearance before the US Senate Banking Committee and the US Congress (in a two-day meeting) to elaborate on the Fed’s stance on US interest rates. As US jobless claims fell more than expected, analysts believe that it will not take long before the US central bank introduces higher borrowing costs in the world’s largest economy.

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The benchmark stock index of Indonesia (Jakarta Composite Index) edged higher on Monday (23/02) to set another all-time record high supported by foreign investors’ net buying (IDR 708.2 billion), optimism that Greece will not default on its debt or exit from the Eurozone, and on gaining Southeast Asian stock markets (while markets in China were still closed due to Chinese New Year). Meanwhile, the Indonesian rupiah exchange rate depreciated 0.09 percent to IDR 12,836 per US dollar according to the Bloomberg Dollar Index.

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Indonesia’s rupiah exchange rate weakened on Friday’s trading day (30/01) in line with the performance of several other Asian currencies. South Korea’s won fell on strengthening expectations of an interest rate cut and Japan’s yen declined on the slowdown of government bond sales. For market participants these were reasons to purchase US dollars at the expense of the rupiah. Indonesia’s currency had depreciated 0.41 percent to IDR 12,633 per US dollar based on the Bloomberg Dollar Index at 2:35 pm local Jakarta time.

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The Standard Chartered Bank expects the economy of Indonesia to accelerate slightly in 2015 compared to this year’s estimated performance. The bank forecasts a growth pace of 5.2 percent year-on-year (y/y) next year, up from 5.1 percent (y/y) in 2014. Standard Chartered Bank economist Eric Sugandi recently said that the Indonesian economy will be affected by two factors: the great rotation (capital outflows from emerging markets ahead of US interest rate hikes) and growth disparity (slowing growth or recession in China and Japan).

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Although many currencies weakened against the US dollar after the US Federal Reserve stated that it is on track to raise its key Fed Fund Rate "somewhere next year" amid structural improvement of the US economy (after having kept the rate near zero for a "considerable time"), Indonesia's rupiah opened strong on Thursday (18/12). Based on the Bloomberg Dollar Index, Indonesia’s currency had appreciated 0.91 percent to IDR 12,553 per US dollar at 9:15 local Jakarta time.

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Despite some concern about inflation, the US Federal Reserve stated that it will keep interest rates close to zero. The central bank announced this after the two-day policy meeting (Federal Open Market Committee, FOMC). Ahead of the meeting, market participants had increasingly speculated about the chance of sooner-than-expected US interest rate hikes as US economic data has generally been positive (including 4.2 percent GDP growth in the second quarter and weekly jobless claims that declined to near record lows).

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While some investors hope that the European Central Bank will enhance monetary easing by pumping more funds in the economy, the Federal Reserve is expected to continue monetary tightening. On 29-30 July, the Federal Open Market Committee (FOMC) meets and probably reduce the bond-buying program (quantitative easing) by another chunk of USD $10 billion to USD $25 billion in August. Since the start of 2014 when the Fed bought USD $85 billion worth of bonds per month, the program has been wound down amid an improving US economy.

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The US dollar continues to depreciate against emerging currencies after the minutes of the Federal Reserve’s latest FOMC meeting, released Wednesday (09/07), suggest that the US central bank will maintain historic low interest rates (0.0 - 0.25 percent) into 2015. The Fed informed that US interest rates hikes will only occur ”a considerable time” after the US asset-buying program (quantitative easing) has ended. Based on the latest minutes, this program is expected to end in October 2014.

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Most emerging currencies in Asia appreciated against the US dollar on Monday (07/04) as the 192,000 jobs that were added by US employers in March 2014 are believed to be too low to trigger an early interest rate hike by the US Federal Reserve. The new jobs data did not meet expectation, particularly after the strong US private jobs report. Meanwhile, trading in Asia was subdued as China's financial markets were closed (due to the Qingming Festival also known as Tomb Sweeping Day).

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After the release of US non-farm payrolls on Friday (02/10) markets are starting to doubt whether the Federal Reserve has room to raise its key Fed Fund Rate at all in 2015. In September a total of 142,000 jobs were added to the US economy, well below the market consensus of 201,000. Moreover, August non-farm payrolls were revised down to 136,000 (from 173,000 initially). It was the first time since mid-2013 that US jobs grew at such a slow pace in two consecutive months. So far in 2015 US non-farm payrolls grew at an average of 198,000 per month, significantly down from the average growth pace of 260,000 per month last year.

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US Federal Reserve Chairwoman Janet Yellen reminded global investors to prepare for a sooner-than-expected US interest rate hike (Fed Funds Rate, FFR) provided that the economy of the USA - the world’s largest economy - continues its improving trend. In fact, speculation has emerged that the FFR will be raised before the end of 2014 although Yellen stated more than once that the ‘close-to-zero’ interest rate environment would be maintained for a considerable period after the US bond-buying program (quantitative easing) has ended.

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The Indonesian rupiah exchange rate depreciated 0.35 percent to IDR 11,714 per US dollar according to the Bloomberg Dollar Index on Monday (25/08) as the positive market sentiments that were caused by Indonesia’s Constitutional Court that rejected Prabowo Subianto’s claim that the 2014 presidential election was invalid due to massive fraud, eased. Market participants were again looking at the domestic economic condition as well as international developments that are considered to impact on the performance of Indonesia’s currency.

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The Indonesian rupiah exchange rate appreciated 0.33 percent to IDR 11,698 per US dollar on Wednesday (16/07) according to the Bloomberg Dollar Index. Although at the start of the trading day the rupiah weakened due to commentary of Federal Reserve Head Janet Yellen who said that US interest rates may increase sooner than expected provided that the US job market improves faster than anticipated, at the end of the trading day Indonesia's currency strengthened on improved economic growth in China, the world’s second-largest economy.

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Most emerging market currencies, including the Indonesian rupiah exchange rate, appreciated against the US dollar on Tuesday (08/04) due to carry trade (meaning the selling of low-yield currencies for higher-yielding assets) and expected stimulus from China's government to boost its economy (Chinese shares in fact gained 2.2 percent on this stimulus speculation). The rupiah appreciated 0.14 percent to IDR 11,289 per US dollar based on the Bloomberg Dollar Index, partly due to variety of domestic factors.

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At 15:00 local Jakarta time on Tuesday (01/04), the Indonesian rupiah exchange rate as well as the country's benchmark stock index (known as the IHSG or Jakarta Composite Index) have shown a positive performance so far. Based on the Bloomberg Dollar Index, the rupiah appreciated 0.64 percent to IDR 11,288 per US dollar, while the IHSG climbed 2.15 percent to 4,871.38. A number of internal and external factors contributed to this remarkable performance today.

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Positive market sentiments stemming from Wall Street pushed Indonesia's benchmark stock index (known as the Jakarta Composite Index or IHSG) further up on Wednesday (12/02). Even though technical indicators (such as the bollinger band) suggest that the majority of Indonesian stocks are close to the overbought area, it did not prevent investors from stock trading. The appreciating rupiah exchange rate, rising Asian indices and positive openings in Europe all contributed to the IHSG's 0.58 percent gain to 4,496.29 points.

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From the start of today's trading day (06/01), the Indonesian rupiah exchange rate depreciated against the US dollar. Based on the Bloomberg Dollar Index, Indonesia's currency fell 0.48 percent to IDR 12,238 per US dollar at 13:00 local Jakarta time. This declining trend is in line with the majority of other Asian Pacific currencies. With the exception of the Australian dollar and the Japanese yen, the US dollar appreciated against all Asia Pacific currencies in the morning of Monday (06/01).

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Ahead of the Federal Open Market Committee (FOMC) meeting on 17-18 December 2013, the Indonesia rupiah exchange rate is continuing its depreciating trend as the economies of the USA and Japan, particularly the capital markets, are improving and causes the US dollar and Yen to appreciate against other currencies. Both currencies are considered safe havens amid the current volatile world economy. One of the victims is the rupiah, which fell to IDR 12,126 per US dollar at 12.30 local Jakarta time (Bloomberg Dollar Index).

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Positifnya laju bursa saham Asia sepanjang sesi yang terimbas dari menghijaunya bursa saham AS dan Eropa di akhir pekan kemarin dan adanya spekulasi Pemerintah China akan melakukan reformasi ekonomi untuk menopang pertumbuhan negaranya dan berita positif dari tetapnya rating BBB- peringkat utang Indonesia oleh Fitch Rating memberikan angin segar pada IHSG pada hari Senin (18/11).

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