- The Indonesian rupiah may be Asia’s best-performing currency for the remainder of the year.
- The rupiah increased 1.3% in the third quarter, despite Asian competitors weakening due to higher Treasury rates.
- Despite all of the bullish momentum, the rupiah was unable to break over a technical resistance level of 14,200 versus the US dollar last month.
Rupiah to become Asia’s best-performing currency
With rising commodity prices increasing the country’s trade surpluses, the Indonesian rupiah may be Asia’s best-performing currency for the remainder of the year.
The coal and palm oil exporter is profiting from a worldwide energy crisis that has engulfed many of its rivals who are net commodities importers. Indonesia is set to release September trade statistics following a record US$4.74 billion (S$6.41 billion) surplus in August, the country’s 16th in a row.
The rupiah increased 1.3% in the third quarter, despite Asian competitors weakening due to higher Treasury rates. With the country’s foreign reserves at an all-time high, Bank Indonesia has plenty of firepowers to maintain the currency if US rates climb higher in the coming months.
“We continue to be lean positively on the rupiah and expect it to remain one of the best performers across emerging market Asia on a total-returns basis in the fourth quarter,” said Divya Devesh, head of ASEAN and South-Asian FX research at Standard Chartered Bank in Singapore.
He pointed out that Indonesia was in a better situation than it had been before the 2013 taper tantrum, with a cumulative current account trade surplus of US$13 billion in the past four quarters, compared to a US$12 billion deficit eight years earlier.
Challenges to overcome
The rupiah’s attempt to remain at or near the top of Asia’s leadership board this quarter, after leading it in the three months ending September, is under danger. Despite all of the bullish momentum, the currency was unable to break over a technical resistance level of 14,200 versus the US dollar last month, which might restrict any advances.
Continued rises in Treasury rates, which have risen about 20 basis points since the end of last month, will also reduce the appeal of the rupiah’s carry trade. Foreign funds have net sold the country’s debt for 13 days in a row.
However, many of the rupiah’s regional competitors are experiencing much greater challenges. Thailand’s weakening economy and rising current account deficit have weighed on the baht, while the Philippine central bank has indicated that the peso may drop more this quarter.
Meanwhile, the Singapore dollar’s upside may be restricted if the Monetary Authority of Singapore maintains current policy settings at its forthcoming monetary policy review, as is largely predicted.
The Malaysian currency is the one outlier that has the potential to dethrone the rupiah. Malaysia’s development is being boosted by a high immunization rate, which allows the government to relax restrictions, as well as rising oil prices. The advances of its neighbor, however, do not invalidate the rupiah’s strong argument.
