FX Market and IDR Bond Report - April 2015

Attached is our monthly FX and IDR Fixed Income Market report for April 2015
 

SUMMARY
 
Top headline for the month of April was correction on strong USD theme. Weak US economic growth in the first quarter of 2015 due to winter was the main reason behind the correction. However, we still saw strong US economic growth in contrast to the subdued economic growth trajectories elsewhere. Weaker developed economies such as China, Japan and Euro-Zone were forced to cut interest rates and channel cheap liquidity into the financial systems. On the flipside, Federal Reserve is on its path of hiking interest rate.
 
Rupiah enjoyed strong performance in the first couple of weeks in April as the USD bullish trend halted on correction.  USD/IDR has climbed back to the highest level since financial crisis in 1998 due to much weaker than anticipated Indonesia Q1 2015 economic growth. Weak economic growth has increased the possibility of rate cuts by Bank Indonesia and hurting Rupiah.  
 
Market is anticipating US to go for the first interest rate hike in between June and September meetings, by a cap of 75 bps this year. The steeper the interest rate increases will generally strengthen US Dollar, which will also translate into weaker global currencies. However, the FOMC members failed to reach consensus on the timing for the first interest hike.
 
Weak economic growth and depreciating Rupiah have brought a dilemma to Bank Indonesia. While Bank Indonesia could cut interest rate to support economic growth but may worsen the current account outlook thus will further weaken Rupiah. On the flip side, Indonesia inflation is expected to fall to sub five percent by the end of this year thus make room for interest rate cut (s).