The exchange rate of the rupiah strengthened again against the United States dollar (US) in trading Friday (24/7/2020). Despite the slight strengthening, 0.07% to Rp. 14,540 / US $, it was enough to deliver the rupiah to book a 4-day winning streak.
During this period the total appreciation of the rupiah was 1.16%. But despite being able to note a series of reinforcement, there is bad news, investors are again taking action to "throw" the rupiah.
This can be seen from the biweekly survey conducted by Reuters which shows investors are now taking short (short) rupiah positions. The survey from Reuters uses a range of -3 to 3. A positive number means that market participants take long (long) positions against the US dollar and sell (short) against the rupiah, and vice versa.
The survey results released on Thursday (7/23/2020), showed the number 0.61, double more than the results of the previous survey 0.26. This means that investors are adding to the rupiah short position, even though 4 weeks ago it still took a long position, with the survey number -0.05 (red column).
The bad news again, the Reuters survey results show investors take long positions against the majority of major Asian currencies. Apart from the rupiah, only Thai baht was "thrown away".
Factors Affecting Indonesia's Economic Recovery
According to the survey, one of the triggers for the sell-off was Bank Indonesia (BI), which slashed the benchmark 7 Day Reserve Repo Rate by 25 basis points (bps) last week. Thus, throughout this year BI has lowered interest rates 4 times each by 25 bps.
With this cut, the yields on investments in Indonesia will certainly go down. Yet so far Indonesia has relied on high yields to attract investment. But the good news, BI indicates that it will not reduce interest rates again this year.
The institution, which is headquartered in Washington DC (United States), estimates that Indonesia's economy will not grow, aka 0%. But the World Bank has a second scenario, namely the Indonesian economy will contract by -2% by 2020 if the global recession turns deeper and domestic social restrictions are tighter.
At the same time in the afternoon, the Governor of DKI Jakarta, Anies Baswedan extended the limitation of the Large-Scale Social Transition (PSBB) transition for 14 days, due to the spread of coronavirus cases which was still quite high. The transition PSSB continues to be extended risks making Indonesia's economic recovery run slower and longer.
US Economy Against Indonesian Economy
July is the beginning of the third quarter of 2020, if the PSBB transition continues, meaning that not all economic sectors have yet been opened, there is a risk of minus economic growth, as predicted by the World Bank. Understandably, DKI Jakarta contributes 29% of the national gross domestic product (GDP) in 2019.
The sluggish greenback can be seen from the US dollar index which has continued to decline lately, yesterday ending at 94.602 which is the lowest level since September 2018. This index is formed from 6 major currencies and is often used as a benchmark for the strength of the US dollar against other currencies.
This week, the European government agreed on a fiscal stimulus of 750 billion to revive the economy which has fallen into recession due to the coronavirus pandemic. The policy raises hopes of a revival of the Blue Continent economy and makes the euro exchange rate shot up.
When hopes for economic recovery in Europe skyrocketed, market players were pessimistic that the US economy would soon rise. The reason, the addition of Covid-19 cases in the land of Uncle Sam is increasing.
The State of California even re-implemented a quarantine (lockdown) policy to reduce the spread of the coronavirus. Meanwhile, the number of Covid-19 cases in Europe has been sloping.
