Indonesia is one of a handful of EM countries where macro analysts have an OW recommendation. While Bank Indonesia (BI) is reportedly contemplating additional steps to prop up the Indonesian rupiah (IDR). BI is pondering to allow domestic non-deliverable forward (DNDFs) contracts which will be settled in IDR rather than in USD, sources say. The benchmark rate to be used for settlements will be the Jakarta Interbank Spot Dollar Rate (JISDOR) which is determined by BI. In 2013, BI banned local players from participating in the NDF market as it attempted to curtail offshore IDR trading and volatility.
NDFs are derivatives that allow investors to hedge or put on a speculative position, particularly if there are restrictions for foreigners to participate directly in the spot market. The NDF contracts are usually settled in USD. There is no exchange of the underlying currency but excessive movements in the NDF market can affect spot rates. The latest proposals are consistent with recent measures to support IDR.
For example, the government introduced an import tax on consumer goods to help curtail the current account deficit which is under pressure due to the higher import bill. It appears the authorities’ focus is on FX stability. This seems to be the number one priority for now and placed above the risks to growth.
For USDIDR, it has stayed below the 15,000 barrier in the past few weeks after spiking to 14,950 in early September. IDR is not out of the woods but one comfort is that the authorities are acting proactively and not sitting idly by. Alternatively, short 1Y vs buy 3Y USDIDR straddles, vega-neutral. Courtesy: Commerzbank
Currency Strength Index: FxWirePro's hourly USD spot index is inching towards 51 levels (which is bullish), while articulating (at 14:15 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex


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