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Indonesia’s Rupiah Charges to the Top of Asia’s Best-Performing Currencies

  • Feb 27, 2023

(Bloomberg) — The Indonesian rupiah has charged to the top of Asia’s currency leaderboard but its moment in the sun may be short-lived.

Risks to the outlook are building as traders reassess how high US rates may go and support from Indonesia’s current-account balance wanes. All this is likely to hurt the rupiah, which has rallied more than 2% against the dollar this year to outperform all its regional peers.

“Persistently higher global bond yields will likely keep cross-asset volatility elevated, which is not positive for the rupiah,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore.

The rupiah is coming under pressure as the dollar strengthens and Indonesian bonds head for their first monthly outflow since October. After a rally fueled by bets for a US policy pivot, traders are dialing back bullish wagers on emerging assets as the Federal Reserve forges ahead with its tightening campaign.

The rupiah has lost some momentum in recent days. It weakened about 1.5% in February after posting its biggest monthly gain in almost three years in January on the back of a record current-account surplus and bond inflows.

Bond outflows are weighing on the currency, with overseas funds having sold almost $400 million of Indonesian sovereign securities in February, after plowing in $3.3 billion the previous month.

Additionally, some of the economic tailwinds that propelled the rupiah higher look set to ease. Barclays Plc projects that Indonesia’s current-account excess will swing to a deficit of 0.2% of gross domestic product in 2023 and 0.8% in 2024, according to a note.

Rate Pause

The currency also lost a key source of support after Bank Indonesia kept its benchmark interest rate on hold this month as price pressures eased. Investors will look to core inflation data due Wednesday to gauge if the central bank’s tightening cycle is over.

As investors wait to see if a repatriation of exporters’ dollar earnings will prop up the rupiah, their attention may turn elsewhere. If Indonesia’s currency falters, the Thai baht and South Korea’s won are likely to end the year as Asia’s top performers due to the positive effect of China’s reopening, according to RBC’s Tan.

To be sure, the baht and the won would have to overcome a slow start, with the latter currently lagging all its Asian peers and the former near the bottom of the scoreboard. 

Here are the key Asian economic data due this week: 

  • Monday, Feb. 27: Australia 4Q company operating profit and inventories, New Zealand 4Q retail sales ex-inflation,
  • Tuesday, Feb. 28: Australia retail sales and 4Q BoP current account balance and net exports, India 4Q GDP and annual 2023 est., Japan industrial production and retail sales, New Zealand business confidence, Thailand BoP current account balance
  • Wednesday, March 1: Australia CPI and 4Q GDP, Indonesia CPI, China PMI’s, BOJ’s Nakagawa speaks, New Zealand house prices, South Korea trade balance
  • Thursday, March 2: Japan 4Q capital spending and BOJ’s Takata speaks, Australia building approvals, New Zealand terms of trade, South Korea industrial production
  • Friday, March 3: China Caixin PMI’s, Tokyo CPI, Australia home loans, New Zealand consumer confidence, Singapore retail sales

Source: https://www.bnnbloomberg.ca/indonesia-s-rupiah-charges-to-the-top-of-asia-s-best-performing-currencies-1.1888438