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JAKARTA (TheInsiderStories) – The Indonesian currency continued to suffer weakness on Tuesday (3/10) after slipping to a 10-month low against the US dollar last September. Even 30Rates monitor forecasts the Rupiah to move in a range of Rp 13,500 to Rp 14,000 against U.S dollar in this month.

According to Bloomberg, the rally of the dollar petered out as investors awaited fresh triggers for trades from President Donald Trump’s pending decision on the leadership of the Federal Reserve, along with upcoming policy maker speeches and U.S. economic data. Asian stocks were mixed after American benchmarks closed at record highs.

Japanese stocks were little changed, Australian shares fell and futures on Hong Kong equities advanced. Crude traded at around $50 a barrel as the market awaited reports on U.S. inventories. Markets in South Korea, China and Taiwan are closed for national holidays. A number of Fed speakers are on the schedule later this week, and Friday brings the monthly employment report, though that might be a cloudier gauge than usual due to the impact of hurricanes.

Hawkish statement from U.S central bank has led to U.S-dollar appreciation and put pressure on other emerging markets, including Indonesia. U.S dollar has surged to a 10-month high, to Rp13,580 against the Indonesian Rupiah, its highest level since last December, during intra-day session yesterday. Market closed yesterday with U.S dollar strengthened to Rp13,542, up 0.02 percent from its previous close.

Local business players have reacted calmly to the recent strengthening of the US dollar. Rosan Roeslani, Chairman of the Indonesian Chamber of Commerce and Industry said that businesspeople have no cause to worry about the U.S dollar strengthening or weakening as long as it continues to move in a tolerated volatility level. They will begin to express concern if the US dollar dramatically strengthens or weakens, day by day.

“It’s okay if U.S dollar pumps up for a certain period, or vice versa. It will signal trouble if the volatility is high so regulators aren’t able to manage it. We don’t want any uncertainty, so we can do our business planning and budgeting smoothly,” he said on Tuesday (3/10).

Mirza Adityaswara, Indonesia’s Central Bank Deputy Governor Senior, addressed rumors that Kevin Warsh could replace Yellen, this sent the U.S. dollar higher, given his hawkish views. Federal Reserve chair is scheduled to hold a meeting in the next two to three weeks. Market concerns about Warsh have sent US dollar quite higher today.

“At the moment, U.S is selecting new Fed Governor, as from next February Yellen will no more be in place. There is one candidate, namely Kevin Warsh (a characteristically hawkish money-man) to replace Yellen. Warsh has been a Fed member since 2011 and he never agreed with the quantitative easing program. That’s why the market is concerned that if Warsh leads the Fed, he will increase the Fed Fund Rate more aggressively,” he said.

Meanwhile, U.S factory activity surged to a more than 13-year high in September, amid strong gains in new orders and raw material prices, pointing to underlying strength in the economy, even as Hurricanes Harvey and Irma are expected to dent growth in the third quarter.

It has lifted three main composites in the Wall Street market, including Dow Jones Industrial Average, by 0.68 percent to 22,557.60, Nasdaq Composite by 0.32 percent to 6,516.72 as well as S&P 500 index by 0.4 percent to 2,529.12.

The yield on U.S 10-year treasury notes, which move inversely to price, was higher at around 2.334 percent, as was the yield on the 30-year Treasury bond, at 2.856 percent.

He added that there is capital outflow at a tolerated level in the local market. Global investors see the U.S as an attractive market following hawkish statements from the last Fed meeting. Fed Fund Rate probability rose from 33 percent to more than 60 percent at the moment. Central banks see the Fed as likely increasing their rate next December.

“Even so, the Fed plan to reduce their assets gradually; they currently stand at more than US$4.5 trillion. They will reduce their assets starting from this month, about $10 billion each month. We should take look at this closely and how this affects the market,” he added.

In addition, Republicans unveiled sweeping changes to America’s tax code last week, in a proposal that dramatically lowers taxes on businesses and many households but remains unclear on issues such as how to pay for it all. The framework, a production of the Trump administration and Republican leadership, calls for lowering the corporate rate from 35 to 20 percent. It would also bring down the rate for so-called pass-through businesses to 25 percent.

These external factors have become money market movers in the last 10 days. U.S dollar surged against other currency including the Indian Rupee by 0.40 percent, Japan Yen by 0.33 percent, Singapore dollar by 0.32 percent, China Yuan by 0.24 percent as well as Indonesia Rupiah by 0.27 percent.

Indonesia money market volatility (against US dollar) has slightly increased from 2.2 percent to 3 percent in the last 10 days, way better compared to last “taper tantrum” in 2013, when it was recording 13 to 15 percent.

Market Capitalization

Given external factors, including U.S tax reform plan, U.S Factory activity data and Fed data, the US dollar has soared to a hawkish level, domestic data including forthcoming Consumer Confidence Index Should have a mixed effect. External sentiment, at the end, according to Adistyawara, will exert less of an effect than economic fundamentals.

On the domestic side, economic data is positive. Indonesian consumer price rate stood at 0.13 percent on September, or 3.72 percent on an annual basis and 2.7 percent on a calendar basis, still within the range of inflation target this year of 4 percent, data from Statistics Indonesia reveals.

Adistyawara projected in 2017 full-year inflation will be around 3.5 percent. In addition, Balance of Payments is projected to reach $11 billion, from initial outlook of $6 billion, regarding strong capital inflow on portfolio investments. Other positive data: GDP growth at 3Q and 4Q is expected to reach 5.15 and 5.3 percent, respectively.

Thanks to notably positive economic fundamentals, the Indonesian capital market continues to gain capital inflows and record new highs. Jakarta Composite Index rose 25.42 point (0.43 percent) from 5,914 to 5,939 in the closing session yesterday. JCI even reached a new level of 5,953 during its intraday session.

In accordance with that, market capitalization has reached Rp6,549.56 trillion at yesterday’s close, passing this year’s target set by the Indonesian Bourse authority.

Writing by Yosi Winosa and Elisa Valenta, Email: yosi.winosa@theinsiderstories.com and elisa.valenta@theinsiderstories.com

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