Indonesian Rupiah: Oil and US inflation pose risks – MUFG
MUFG’s Lloyd Chan warns that upcoming US inflation data could test the recent Rupiah recovery, as firmer US inflation may reinforce elevated US yields and challenge USD/IDR’s break below 17,700.
Indonesian currency, the Rupiah, faces escalating risks from rising oil prices and US inflation data, according to MUFG analyst Lloyd Chan. A stronger US inflation outlook could pressure the already volatile exchange rate, potentially pushing USD/IDR below the 17,700 threshold. Foreign investment in Indonesian government bonds (SRBI) has reached 27% of outstanding supply, approaching previous peak levels.
However, Indonesia's domestic financial cushions and the export of commodities like coal, palm oil, and base metals have become less effective in countering the negative impact of rising oil prices on the country's trade balance. If Brent oil prices exceed US$82 per barrel, the protective effect of domestic sectors could diminish.
Persistent high oil prices, possibly crossing the US$100 mark, might reignite concerns about fiscal strain and subsidy expenditure in Indonesia. Meanwhile, other global currencies like USD/JPY and Gold are also experiencing fluctuations, with USD/JPY nearing seven-month lows and Gold retreating from a brief recovery above $4,400.
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