Indonesia’s Rupiah Surges to the Top of Asia’s Best-Performing Currencies

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Indonesia’s rupiah has experienced a remarkable surge in its exchange rate over the last few months, propelling it to the top of the list of Asia’s best-performing currencies. The Indonesian currency has traded at its highest level in almost three years.

Top of Asia’s Best Currencies

The rupiah has been rising in recent months due to various factors. Traders have been reassessing their expectations about US interest rate hikes, resulting in investors turning away from the dollar and towards the rupiah. Indonesia’s current account balance has further supported this favourably, helping push the currency up even more.

However, this upwards trajectory may only continue for a while. As US rates rise again and investor confidence in Indonesia’s current-account balance wavers, traders are beginning to worry that the recent gains could be reversed.

The rupiah has already rallied more than 2% against the dollar, outperforming its regional peers. It is still determined how long this surge will last despite tightening monetary conditions worldwide.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore, said, “Persistently higher global bond yields will likely keep cross-asset volatility elevated, which is not positive for the rupiah.”

The Indonesian Rupiah

Recently, the Indonesian rupiah has lost some of its upward momentum. After posting its biggest monthly gain in almost three years on record current-account surplus and bond inflows in January, the rupiah weakened by about 1.5% in February.

Bond outflows are weighing on the currency, with overseas funds selling almost $400 million of Indonesian sovereign securities in February after ploughing in $3.3 billion the previous month. The sales come amid concerns that the country’s current-account surplus may need to be revised.

Analysts have warned that Indonesia’s currency could have further downside risk if global interest rates continue to rise. With higher borrowing costs sapping investor confidence, demand for the rupiah could likely weaken as investors look elsewhere for better returns.

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