The Indonesian rupiah exchange rate strengthened slightly on the last trading day of the week. On Friday (08/08), Indonesia’s currency appreciated 0.15 percent to IDR 11,779 per US dollar according to the Bloomberg Dollar Index. Most Asian currencies and stocks fell, while prices of gold and oil jumped, after US President Barack Obama agreed to air strikes in northern Iraq (aimed at Sunni extremist militants). In combination with continued tensions in Ukraine as well as Gaza, investors opt for risk aversion (and profit taking).
However, stocks in mainland China and Shanghai were up after the world’s second-largest economy recorded a USD $47.3 billion trade surplus in July 2014. China’s exports jumped 15.4 percent (month-on-month), far above analysts’ expectations. An improving Chinese economy is expected to impact positively on Indonesian exports as China is one of the most important trading partners of Indonesia.
The conflict in Iraq, an important oil producer, immediately resulted in rising oil prices. US crude rose to USD $98.45 per barrel, while Brent reached USD $106.39 per barrel. In mid-June 2014, Brent had peaked at USD $115 as market participants feared disruptions to the oil supply amid geopolitical tensions in northern Iraq (although the main oil fields are located in the southern part of Iraq). These rising oil prices are a problem for Indonesia as the country is a net oil importer (the government subsidizes a large portion of fuel prices) and higher oil prices will therefore burden the country’s already wide current account deficit. Indonesia’s central bank (Bank Indonesia) expects that the current account deficit will reach 4 percent of gross domestic product (GDP) in the second quarter of 2014 (from 2.06 percent in the previous quarter).
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.48 percent to IDR 11,822 per US dollar on Friday (08/08).