USD/IDR to retrace lower after August seasonality rupiah pitfall – ANZ

The rupiah has had a volatile move so far in 2020. The sharp depreciation in March saw rupiah weaken towards 16,625. Over April and May, the rupiah has recovered most of its losses but month-to-date in July, the rupiah was one of the worst performing Asian currencies. Looking ahead, economists at ANZ Bank are constructive on IDR once the historical tendency to weaken in the month of August gets past.

Key quotes

“For the past 16 years, the rupiah has depreciated against the USD without fail during August. The average spot decline between 2004 and 2019 is 1.9%, with a range of 0.2% to 5.9%.”

“The reason for the rupiah’s poor performance in the month of August could be due to the repatriation of accumulated dividend payments by foreign investors. But with dividend payments this year down by a fifth compared to last year, the pressure from dividend repatriation may not be as strong compared to previous years.” 

“We are constructive on IDR, and have a year-end target of 13,950. We see ample global liquidity being provided by major central banks and long periods of zero or negative interest rates in advanced economies as strong drivers for portfolio flows into Indonesian bonds given their attractive yields.” 

“We expect concerns over BI’s debt monetisation plan to fade, given their commitment that it is a ‘one-off’ burden-sharing exercise due to unprecedented circumstances.”