Changing perceptions about US monetary policy have a big impact on Indonesian stocks and - especially - the rupiah, today. According to the Bloomberg Dollar Index, the Indonesian rupiah had appreciated 1.30 percent to IDR 13,418 per US dollar by 12:55 pm local Jakarta time. Meanwhile, the Jakarta Composite index rose 0.52 percent to 4,879.06 after the first trading session on Monday (06/06). What caused this performance? Well, the release of the weakest US jobs data since 2010.
Data from the US Labor Department published on Friday (03/06) show that only 38,000 workers were added to the US economy in May 2016, the lowest figure since September 2010. This weak result boosted expectations that the US Federal Reserve will not decide to implement another interest rate hike anytime soon. Odds for a June Fed Funds Rate hike fell dramatically to 4 percent (from 30 percent one week earlier), while odds for a July rate hike declined to 27 percent. With expectation of a longer delay in US monetary tightening, emerging market assets - including Indonesian stocks and the rupiah - become attractive. Investors are now waiting for the next speech of Federal Reserve Chairwoman Janet Yellen, in Philadelphia later today, for more clues about the exact timing of further US monetary tightening.
The US dollar is weakening against basically all emerging market currencies today, touching a five-week low along the way. However, there remain forces at play that could suddenly support the US dollar at the expense of emerging market assets. Concerns about the so-called 'Brexit' have increased after polls - released over the weekend - showed many Britons support an exit from the European Union. This could trigger additional volatility and profit taking, hence tempering the current rally in emerging markets. The referendum on the 'Brexit' is scheduled for 23 June 2016 and its result could shock global markets.
Bank Indonesia's benchmark rupiah rate (the Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.98 percent to IDR 13,478 per US dollar on Monday (06/06).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Don't forget the impact on gold... rallying sharply today.