Indonesian Currency Drop as Yields Spike Lifts Dollar

JAKARTA (TheInsiderStories) – The Indonesian Rupiah hit its lowest point since October 27 on Thursday. It has dropped around 1.7 percent since the end of January amid a global equity sell-off.

Earlier this Thursday, based on Jakarta Interbank Spot Dollar Rate (Jisdor) announced by BI, the Rupiah exchange rate was at Rp 13,605 per US dollar or weakened 0.54 percent compared to Wednesday’s position at Rp 13,533 per US dollar.

The position also reflects the deepest Rupiah weakening since mid-2016.

On the spot market Thursday afternoon the Rupiah closed in a range of Rp13,605 per US dollar.

Bank Indonesia said the depreciation of the Rupiah on Thursday, which broke through a level of Rp13,600, was still ‘normal dynamics’ as market players adjusted to face an expected Federal Reserve rate hike in March 2018.

“It’s only a normal adjustment, if now the expectation is March, there will be a rise in pressure in February,” BI Senior Deputy Governor Mirza Adityaswara said on Thursday.

Market players are currently changing their expectations of interest rate movements of the Federal Reserve, which could rise 3-4, more than a normal 2-3 times this year.

This is due to the improvement in US macroeconomic data, particularly the employment data followed by rising inflation expectations and also US government bond yields.

The Rupiah exchange rate, which traded interbank on Thursday morning, also moved lower by 37 points to Rp13,580 compared to a previous position of Rp13,543 per US dollar.

Some analysts speculated that US dollar is mighty due to a rise in US government bond yields, after a US government budget deficit.

Rising US bond yields stressed down the Rupiah even though there was positive sentiment in the country.

There has been a steady climb in U.S. yields over the past two weeks on expectations the European Central Bank will tighten monetary policy, and on increasing worries that inflation is accelerating due to bigger paychecks.

The benchmark 10-year yields of US10YT=RR rose to a four-year high of 2.88 percent, with traders adding to their positions for a faster pace of rate hikes, lending support to the dollar.

Earlier, BI Governor Agus D.W Martowardojo stated he expected positive sentiment of rising Indonesian foreign reserves in January 2018 could counter domestic currency pressures more deeply against the US dollar.