FX Primus Ltd.



FX Primus Ltd.

August 04, 2013 22:49 ET

ASEAN Market Review: Indonesian Growth Puts Rupiah at Risk

SINGAPORE, SINGAPORE--(Marketwired - Aug. 4, 2013) - In FXPRIMUS' ASEAN Market Review for 2 August, the brokerage firm focuses on Indonesia's growth slowdown.

Gross Domestic Product (GDP) falls in 2Q

Indonesia's GDP in the second quarter fell to 5.81% YoY, down from the previous quarter at 6.02%. The country probably needs to be cautious on raising the benchmark rate this year, as, together with the higher inflation, it may dampen the growth rate.

To view the image associated with this release, please visit the following link: http://media3.marketwire.com/docs/ASEAN1.jpg

Source: Bloomberg, FXPRIMUS

The scope for Bank of Indonesia to raise the interest rate further could be limited if they put growth as a concern. However, they are keen on preventing cash outflow due to Quantitative Easing (QE) tapering as well. Hence, it will be a tough call.

To view the image associated with this release, please visit the following link: http://media3.marketwire.com/docs/ASEAN2.jpg

Source: Bloomberg, FXPRIMUS

Successful Chinese reform could be next catalyst for Emerging Market (EM) currencies

Tapering causes EM currencies to suffer, however there will still be catalysts available in the medium term.

In the U.S. Federal Open Market Committee (FOMC) statement, they mentioned that it might not be urgent to reduce its current purchasing pace because of deflation concerns and higher Mortgage rates. It shows that growth is a modest improvement from the previous moderate pace.

"We can see that the Federal Reserve (Fed) is very cautious at this point and will probably not decrease purchases so soon. But since tapering is expected to happen within the year, it should be negative news for Asian currencies," said Jimmy Zhu, FXPRIMUS Senior Economist.

"For EM currencies and the New Zealand currency, the next catalyst will be a successful Chinese reform," he said. "China plays a larger regional role in Mongolia, the Philippines, even South Korea and Japan. They depend a lot on Chinese domestic demand. If reform raises consumption, it will benefit countries that are large exporters," he added.

"Even in Developed Market (DM) countries like New Zealand, food accounts for more than 50% of their exports. If the Chinese reform is successful, it will naturally raise thoughts on a shift from hard commodities to soft commodities, " said Jimmy Zhu.

"This is very healthy for New Zealand's exports since their dairy product exports are outweighed. We know that the Chinese market has quite a strong demand in this area. The average wage and personal consumption will probably still need to rise to a higher level for them to afford expensive overseas food products. With that said, the success of a sustainable reform is very important since we saw limitation in traditional investment stimulus. The effect became shorter and has less impact on the global economy," he said.

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