USD/IDR: Indonesia’s high real yields ensure good carry demand for the rupiah – ANZ

The Indonesian rupiah has been trading relatively well. Economists at ANZ Bank expect IDR to take advantage of a stronger external position.

Strong trade surplus a key anchor for the rupiah  

“Even though the rupiah remains vulnerable to shifts in risk appetite, IDR appears to be less influenced by bouts of risk aversion this time.”

“Underpinned by strong commodity prices, a strong trade surplus has provided a steady anchor to the currency. It is now a more important driver for the rupiah than bond flows. At any rate, bond flows have mostly been modestly positive in recent months, helped by attractive real yields. Also, currency stability has been Bank Indonesia’s priority.” 

“The rupiah remains under-valued, and we forecast this under-valuation to gradually narrow on the back of carry demand and as the country approaches an annual current account surplus for the first time since 2011.”