Oil prices to keep haunting the rupiah, analysts say
Oil prices to keep haunting the rupiah, analysts say
Urip Hudiono, The Jakarta Post, Jakarta
The rupiah is expected to remain under heavy pressure this week,
as local demand for the U.S. dollar continues unabated amid a
recent bullish trend in world oil prices.
Though analysts are estimating that the local currency could
survive the week's trading and play out at its current level of
Rp 9,800 a dollar, it could however be in danger of being dragged
down to a Rp 9,900 low if oil prices continue pushing on its
record-setting streak to US$70 a barrel.
Currency analyst Farial Anwar of the Currency Management Group
told The Jakarta Post on Saturday the movement of oil prices will
be the center of the local market's spotlight, as it will be the
only strong sentiment toward the rupiah, after jitters in the
global forex market following China's revaluation of its yuan had
settled down.
"And the prediction that the market is absorbing now is that
the oil price will continue rising, which is bad news for the
rupiah," he said.
The rupiah closed slightly higher at Rp 9,805 last Friday, as
compared to Rp 9,823 the previous trading day, but had fallen by
0.7 percent as compared to its Rp 9,738 level a week earlier.
Global oil prices touched $67 a barrel as production glitches
at major refineries worldwide during a summer oil thirst and an
upcoming winter stocking prompted a market rally.
The price for a September delivery of a barrel of Brent North
Sea crude oil rose to an all-time high of $66.77 in London,
before closing at 66.45 last Friday, while that of light sweet
crude oil shot up to $67.10 in New York, before closing at $66.86
last Friday.
Some analysts expect front-month crude contracts to test the
$70 a barrel threshold in the short term.
Farial explained that rising oil prices will have a severe
impact on the rupiah as Indonesia is now a net oil importer, not
to mention the dollar demand of other companies for their own
import and debt repayment needs.
"What is more worrying is that Indonesia's foreign exchange
reserve is said to have been eroded by all these oil imports,
without being replenished by export revenue," he said.
"If the reserve falls below $30 billion, it would bring a very
negative perception to the market -- it would be like saying we
have no more ammunition to defend the rupiah."
Indonesia's foreign exchange reserves had dwindled to $32.5
billion as of the beginning of the month, from $36 billion at the
year's beginning.
With these factors at play, Farial is expecting the rupiah to
trade at Rp 9,850 a dollar this week, and Rp 10,000 if the worst-
case scenario of the reserve happens.
Bank International Indonesia market analyst Ferry Latuhihin
agreed with Farial, saying that the oil price will be this week's
decisive factor in the trading of the rupiah.
"Besides oil imports, local demand will continue to be strong
due to the needs of the private sector to service its debts," he
said, estimating that the rupiah might however be able to hold
its ground between Rp 9,750 and Rp 9,850 a dollar this week, amid
an expected all-out intervention from the central bank.
"Breaking the Rp 9,900 or even the Rp 10,000 level is not
impossible, as it would have happened last week had the central
bank not intervened in the market."