Charts, undue pessimism on RI favor rupiah

Charts, undue pessimism on RI favor rupiah

Dow Jones, Singapore

Technical analysis of the dollar versus the rupiah shows the Southeast Asian currency is at a crossroads, but the Indonesian currency is more likely to take the appreciation route in the medium-term, says Jan Lambregts, head of Asia-Pacific research Rabobank Group Treasury.

There is the unusual situation now whereby resistance and support trendlines have converged Friday a few rupiah either side of the current spot dollar price of Rp 8,880.

Lambregts says if dollar-rupiah drops decisively below the support trendline drawn from a Rp 6,600 low mid-1999, this could pave the way for a more sustained move down.

Counterbalancing this, however, is a resistance line from a 1998 dollar high toward Rp 17,000, and a break above this level would suggest a move back up is a possibility.

On the daily chart, Lambregts notes the dollar has been trading in a broad sideways range since the end of November last year.

"We would locate key support and resistance at the lower- and upper- boundary of this range respectively, that is Rp 8,800 and Rp 9,000. Fairly firm intermediate support meanwhile can be found at the IDR8,850 level, which has held since the end of January," he says.

To be sure, uncertainty over an expected war in Iraq potentially can lead to violent swings in the exchange rate, but the analyst says that "barring any major new terrorist strikes in Indonesia," the rupiah should be able to post some modest gains versus the dollar, and nominates a medium-term target of Rp 8,750.

"We feel many in the market are too pessimistic over the Indonesian economy, hence macro (economic) data should provide upside surprises. Additional IBRA asset sales appear to be in the air as well and would be supportive of the rupiah. High nominal interest rates will continue to make the rupiah relatively attractive, even though this factor may become relatively less important during the second half of this year," says Lambregts.

Moreover, fears of intervention by Bank Indonesia should keep the rupiah firmly underpinned as well in upcoming months, adding to Rabobank's case for a downward bias for the dollar in the medium term.

Earlier this week, Indonesia released its fourth-quarter gross domestic product figure, which, as analysts expected, showed a slowdown from the previous quarter. Real, non-seasonally adjusted GDP grew 3.8 percent on year compared to an upwardly revised 4.3 percent clip in the third quarter.

Quarter-on-quarter, GDP contracted 2.6 percent in the fourth quarter on a non-seasonally adjusted basis.

"While the impact of the Bali attacks on tourism could clearly be felt, many in the market had actually expected an even worse figure," says Lambregts, highlighting the risks of upside surprises on Indonesian economic data in coming months that could aid the rupiah.

For 2003, Rabobank reaffirms its 4 percent growth forecast.

"We expect consumer-spending strength to continue. Indonesia's sizable 'gray' economy may not show in official GDP figures, but it has proven to be a significant cushion against the negative impact of the Bali bombings and should see private consumption further supported," he says.

As a net oil exporter Indonesia should also profit from higher oil prices during the first half of this year.

Crude oil prices are near two-year highs on fears of a U.S.- led war with Iraq, and curtailed output from Venezuela.