IDR: short term positive but to weaken further out - ANZ

By FXstreet.com | Updated July 30, 2014 AAA

FXStreet (Bali) - ANZ Strategists Irene Cheung and Kumar Rachapudi, note that the IDR is likely to remain well bid post election results, in which Jokowi was declared the winner, although they anticipate weakness further down the road.

Key Quotes

"Indonesia’s General Elections Commission (KPU) announced that Joko Widodo (or Jokowi) has won the Presidential election, with 53.15% support vs 46.85% for Prabowo Subianto."

"Not all is settled however. Prabowo said that he will contest the results in the Constitutional Court, which could take up to 24 August to rule, though we do not see merit in his contest."

"Barring major protests, we see near-term downside potential for USD/IDR on the back of the Jokowi victory but expect the pair to rebound further out. We think reforms will take time to be put in place, with Jokowi now saying that fuel subsidy rationalization will take place in the next three years."

"Meanwhile, the current account deficit will weigh on the currency as the new government targets to boost growth to 7% in two years. Also, we see a potential increase in USD hedging needs."

"We recommend buying 6m USD/IDR NDF, if it hits 11,700-11,750 (vs 11,805 currently), targeting 12,200 (stop loss 11,400)."

"On bonds, we expect the confirmed Jokowi win to attract flows into the bond market in the near term."

"We maintain our bullish view on the bond market and continue to suggest investors buy 20y bonds, targeting a move towards 8.25% (Current: 8.68%, re-assess level: 8.95%)."

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