While most of the focus, rightfully, remains centered on the disaster in Central Sulawesi where presumably thousands of people have lost their lives due to a big earthquake and devastating tsunami, it is worth keeping an eye on the Indonesian rupiah exchange rate which is again facing heavy pressures and has now slipped beyond the psychological boundary of IDR 15,000 per US dollar.
For Indonesians the rupiah being beyond the IDR 15,000 per US dollar level is a sensitive issue that brings back memories of the devastating Asian Financial Crisis in the late 1990s. For the first time the rupiah is now back at the same level as in 1998.
According to the Bloomberg Dollar Index the rupiah had weakened 0.93 percent to IDR 15,048 per US dollar by 15:30 pm local Jakarta time on Tuesday (02/10). It is a level that undermines confidence in the Indonesian currency. Therefore, Indonesia's benchmark Jakarta Composite Index started to drop significantly after the rupiah passed the IDR 15,000 per US dollar level. The Jakarta Composite Index was down 1.30 percent by 15:45 am local Jakarta time.
The performance on Tuesday is actually not a case of rupiah weakness but it is still a case of US dollar strength. Other emerging market currencies are also losing ground to the US dollar (although the rupiah is among the most fragile Asian currencies). US dollar strength today stems from rising US Treasury yields and the striking of a revised North American trade pact (a trilateral pact between the United States, Mexico and Canada).
Meanwhile, crude oil prices are at a four-year high and thus give rise to increasing concerns about Indonesia's widening current account deficit (Indonesia being a net oil importer).
Indonesia Investments moves more and more in-depth analyses from the website to the monthly research report. Each month we include a detailed analysis of the rupiah performance in our research report. This report can be purchased here
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