Goldman Sachs: IDR & INR: Terms Of Trade Drive Sharp Divergence

Goldman Sachs note that "over the past month, the Indonesian Rupiah and Indian Rupee have found themselves at opposite ends of the Asian FX league table. With Indonesia's Covid Delta wave fading sharply and commodity prices in the driving seat in global markets, investors have been able to focus on the very different commodity exposures of the two currencies. A sharp increase in energy prices - including coal and oil - both important exports for Indonesia has driven a significant improvement in its commodities terms of trade. By contrast, India is one of the key oil importers across the EM landscape, and, with the return of oil betas across the FX landscape, it is unsurprising to see meaningful INR underperformance and a widening in the trade deficit on the back of record oil imports."

• "We expect continued further gains in oil prices, and in that environment, the Rupee is never going to be the fastest horse in any spot race, with the Rupiah likely to outperform and we are rolling forward the strength in our forecasts so that we now expect USD/IDR to be IDR14,100, IDR14,000 and IDR13,900 in 3-, 6- and 12-months (from IDR14,600, IDR14,200 and IDR14,000 previously). The IDR has historically also been pretty sensitive to volatility in core rates, and that keeps us from making a larger shift for now. In the case of INR, we maintain our relatively constructive view, in part given the still best-in-class carry-to-vol and also given our still robust BOP forecast and expectation of strong capital flows on the back of a robust IPO pipeline."