The Indonesian rupiah could be Asia’s best-performing currency for the rest of this year, with elevated commodity prices boosting the nation’s trade surpluses.
The exporter of coal and palm oil is benefiting from a global energy crisis that has roiled many of its peers that are net commodity importers.
Indonesia is due to post last month’s trade figures on Friday, following a record US$4.74 billion surplus in August — its 16th in a row.
The rupiah rose 1.3 percent in the third quarter, even as Asian rivals weakened with rising US Treasury yields. With the nation’s foreign reserves at a record, Bank Indonesia has plenty of ammunition to support the currency if US yields rise further in coming months.
“We continue to lean positively on the IDR and expect it to remain one of the best performers across EM [emerging markets] Asia on a total-returns basis in Q4,” said Divya Devesh, head of ASEAN and South Asia FX research at Standard Chartered Bank in Singapore.
He said that Indonesia was in a better position than before the 2013 taper tantrum, with a combined current account trade surplus of US$13 billion in the past four quarters, compared with a US$12 billion deficit eight years ago.
There are threats to the rupiah’s bid to remain at, or near the top, of Asia’s leadership board this quarter after topping it in the three months ended last month.
The currency’s inability to breach a technical resistance at 14,200 against the US dollar last month despite all the bullish momentum could limit more gains.
Continued increases in Treasury yields could also weigh on the attractiveness of the rupiah’s trade.
Foreign funds have sold the nation’s debt for 13 consecutive days through Tuesday last week on a net basis.
However, many of the rupiah’s regional rivals are facing even bigger headwinds.
The baht has been dragged down by Thailand’s slowing economy and a growing current account deficit, while the Philippine central bank has signaled that the peso could weaken more this quarter.
Meanwhile, the Singaporean dollar’s upside might be limited if the Monetary Authority of Singapore leaves its policy parameters unchanged at its upcoming policy review, as is widely expected.
The Malaysian currency is the one outlier that could knock the rupiah off its perch. A high vaccination rate enabling authorities to roll back curbs and surging oil prices are buoying Malaysia’s growth.
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