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Stronger Yield Defence Coming For IDR in H2?

IDR

USD/IDR is now less than 1% away from the 15000 level. Onshore spot closed yesterday at 14868. The pair hasn't spent much time above this level from an historical stand point, but the Indonesian authorities don't appear set to launch a rate defence for the currency today.

  • A clear difference in the current context is IDR is still outperforming on a NEER basis. The first chart below plots USD/IDR spot against the IDR NEER, note that the NEER is inverted on the chart.
  • Typically, bouts of USD/IDR strength coincide with NEER weakness as well. The current divergence reflects Indonesia's better terms of trade backdrop, which has driven trade surpluses and a much improved external position for Indonesia relative to past Fed tightening cycles.
  • Such a backdrop has likely left BI more comfortable with the FX backdrop and less need to follow the Fed in lockstep.

Fig 1: USD/IDR Spot & IDR NEER Divergence

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USD/IDR is now less than 1% away from the 15000 level. Onshore spot closed yesterday at 14868. The pair hasn't spent much time above this level from an historical stand point, but the Indonesian authorities don't appear set to launch a rate defence for the currency today.

  • A clear difference in the current context is IDR is still outperforming on a NEER basis. The first chart below plots USD/IDR spot against the IDR NEER, note that the NEER is inverted on the chart.
  • Typically, bouts of USD/IDR strength coincide with NEER weakness as well. The current divergence reflects Indonesia's better terms of trade backdrop, which has driven trade surpluses and a much improved external position for Indonesia relative to past Fed tightening cycles.
  • Such a backdrop has likely left BI more comfortable with the FX backdrop and less need to follow the Fed in lockstep.

Fig 1: USD/IDR Spot & IDR NEER Divergence

Keep reading...Show less