IDR is rallying against USD... TP 9000

The Indonesian year on year inflation rate which is at 2.78%, the lowest over the last 10 years, has triggered the IDR to appreciate against the USD. This fundamental data also has influenced the Indonesian stock market which has been gaining 2.72% this year, adding another gain to the last year performance of 87%.

I have a chart of USD/IDR which shows the trend:

(Source: Exchange Rate.org)

I am expecting the IDR to appreciate to around 9000 at the end of the first half of 2010.

USD / IDR trade balance deficit is decreased

I have data that shows US trade balance with Indonesia. As we all know in international trade a country trade balance against another country is an indicator to the strength of its currency against the other country. The concern is that the US trade balance deficit with Indonesia is decreased. Is it a signal that USD will appreciate in the near term ?

This is the 2008 trade blance data

Month	Exports	Imports	Balance
Jan-08	463.2	1,297.50	-834.3
Feb-08	443	1,151.00	-708
Mar-08	532.4	1,212.80	-680.5
Apr-08	582.3	1,311.80	-729.5
May-08	434.3	1,293.30	-859.1
Jun-08	487.4	1,219.10	-731.7
Jul-08	539.2	1,453.50	-914.3
Aug-08	629	1,557.50	-928.5
Sep-08	588.7	1,392.90	-804.1
Oct-08	496.7	1,553.10	-1,056.40
Nov-08	329.7	1,159.40	-829.7
Dec-08	387.2	1,197.00	-809.8
TOTAL	5,913.10	15,799.00	-9,885.90

This is the data from January to March 2009

Month	Exports	Imports	Balance
Jan-09	269.1	1,208.50	-939.4
Feb-09	304.2	1,008.20	-704
Mar-09	396.9	1,036.40	-639.5
TOTAL	970.2	3,253.20	-2,283.00

I assumed that the IDR appreciating against USD in the last few months is mainly due to the flow of funds from US to Indonesia which are place in financial instruments such as government bonds and equities. If this is the case, we have to prepare for a significant IDR correction in the near term.

IDR is in a pull back

After having a significant gain for almost 3 weeks, the IDR has pulled back to around 10850. The strong rally of the IDR is supported by the global increased in risk appetite. Indonesia also has been mentioned as one of the top three countries to put investment after China and India by the ING group.

The pullback of the IDR is mainly due to the increasing of the political tension due to the decision of Jusuf Kalla not to be in the government with Susilo Bambang Yudhoyono. The duet has been relatively succeed in developing the country according to the market. The Indonesian stock market also has showed some negative sign of this issue.

With the uncertainty of the political issue, the IDR might be reach 11000 level in the near term. But I believe the full year forecast the IDR would be stabilize at around 10.500-11.000.

IDR is Gaining this Week

As what I have predicted last week, the IDR support at 12000 level would be an ideal point for a reversal. IDR closed this week at 11.870 per dollar. The weakening of USD globally is triggered by the Fed plan to spend 1 trillion USD to buy corporate and government debt so that it would be able to reduce borrowing rate. In Indonesia, the JSX also gained this week as I already predicted due to the increasing demand from the foreign investors. The yield on Indonesia's 10 year bonds is arround 12% which is about 10% higher than USA bonds, hence investors are exchanging their USD to get a higher yield in IDR. With the risk appetite improving, I would expect the IDR to keep its strength relatively to USD for the coming week. Any other opinion ?