Indonesian rupiah: something to look at

The strong rise of the USD caused by the tight monetary policy of the Fed made emerging market currencies depreciate. The Indonesian rupiah isn’t an exception. The currency has been suffering a great depreciation since the beginning of the year.

To support the domestic currency, the Bank of Indonesia has significantly increased the interest rate. The bank can be called the most aggressive in Asia this year. Since the middle of May to June, it raised the interest rate by 100 points to 5.25%. However, it hasn’t helped the currency. As a result, up to now, USD/IDR has been trading at highs of October 2015.

Should we expect a further fall?

In the near term, there are risks of the rupiah’s further depreciation. On August 16, the Indonesian’s central bank will hold a meeting. Despite a big number of rate hikes in the past, the central bank is expected to keep the interest rate on hold. It means that the Indonesian rupiah won’t get an additional support this time. However, it has chances for the future…

Current picture.

This week the Indonesian rupiah has managed to recover against the USD. The short-term rise might be caused by the earthquake that happened on Sunday. In the long term, such disasters are negative for the economy. However, in the short term, they cause an increase in the domestic currency. As people need more domestic currency to repair damages, for health caring and etc. Moreover, the economic data released on Monday showed a rise in the economic growth, it rose at the fastest pace since 2013. Up to now, the USD/IDR pair has been trading at lows of the end of July. However, the effect of the economic data can’t continue for a long time. As sons as the USD returns to previous highs, the pair will go up.

What about the longer term.

As we said above, the economic growth data encouraged the Indonesian market. Consumer spending brings some optimism as well. Analysts keep a bullish forecast for the earnings projections for the nation’s companies although the domestic currency depreciates. According to ING, the central bank will increase the interest rate one more time this year.

Moreover, bearish forecasts on the Indonesian currency were at their lowest since May 31.

What’s more, authoritative institutions suggest buying Indonesian bonds. They predict that a positive domestic outlook will support Indonesian assets’ demand when risk sentiment improves.

All these prove that the Indonesian currency has good chances to recover.

What should traders do?

The Indonesian traders should stop worrying about the future of the Indonesian rupiah. According to the analysis, the Indonesian currency has good chances to become stable. As a result, the traders can switch their attention to other currencies at the Forex market. There is a plenty of opportunities to increase your profit. Moreover, it’s always a good idea to diversify your portfolio. Pay greater attention to such currencies as the USD, EUR, GBP, and JPY.