According to the Bloomberg Dollar Index, the Indonesian rupiah continued to depreciate on Monday (20/07). Indonesia’s currency weakened 0.31 percent to IDR 13,395 per US dollar, its weakest level since 1998 when the country was plagued by the Asian Financial Crisis. Meanwhile, Bank Indonesia’s activities are still limited until Wednesday (22/07) due to a public holiday (Idul Fitri celebrations), implying that the central bank temporarily doesn't publish its Jakarta Interbank Spot Dollar Rate (abbreviated: JISDOR).
Across Asia, the US dollar is gaining momentum as worries about a Greek exit (Grexit) from the Eurozone have subsided after debt-ridden Greece finally managed to reach a bailout agreement with its international creditors. Instead markets are now focusing on the timing of higher US interest rates. Janet Yellen, Chief at the Federal Reserve, indicated that the benchmark interest rate of the Fed is to be hiked before the year-end, provided that US macroeconomic data remain supportive. Last Friday, US consumer prices and housing starts showed a robust pick up, boosting expectation that a US interest rate hike will occur later this year.
As the Eurozone and Japan remain committed to their quantitative easing programs (expected to continue into 2016), while the Federal Reserve will tighten its monetary approach, the US dollar’s bullish momentum should persist. Today, the euro touched its weakest level against the US dollar since late April (Japanese markets were closed for a public holiday).
Although the rupiah’s weakening to nearly IDR 13,400 per US dollar is a cause for concern, it is also in line with the global trend (widespread bullish US dollar momentum). As such, Bank Indonesia is expected to let the currency move in line with its fundamentals. However, Bank Indonesia Governor Agus Martowardojo said last week that the rupiah is currently slightly undervalued. He added that Bank Indonesia is continuously monitoring the market but not aims for a specific level.
So far this year, the rupiah has depreciated 7.2 percent against the US dollar, making it the worst-performing emerging Asian currencies after Malaysia’s ringgit.