The Indonesian rupiah set a two-month high on Wednesday, rallying after Joko "Jokowi" Widodo was declared the winner of Indonesia's presidential election. The rupiah rose more than 0.9 percent at one point and touched a high of around 11,485 versus the dollar, its strongest level since late May, according to Thomson Reuters data. As the currency rallied, a spokesman for Indonesia's central bank said it will intervene in the foreign exchange market to stabilise the rupiah.
A relief rally, similar to one that the Indian rupee enjoyed after an election in India, could eventually lift the rupiah to levels around 11,300 or 11,400, said Mirza Baig, head of foreign exchange and interest rate strategy Asia for BNP Paribas in Singapore. "But I would expect that the Bank Indonesia appetite for dollars will be there. Bank Indonesia likely wants to rebuild its FX reserves," Baig said, adding that the rupiah may return to a range of 11,500 to 11,800 in a few months. Indonesia's Elections Commission, known as KPU, said on Tuesday Jokowi had won the July 9 presidential election over his rival, former general Prabowo Subianto.
On Tuesday, a lawyer for Prabowo said he wouldn't challenge the vote result in the Constitutional Court, but late Wednesday morning, his side said there would be such a challenge. "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," analysts at ANZ said in a research note, adding that Indonesia's current account deficit will also weigh on the rupiah.
The rupiah had held firm in recent weeks as investors bet on a win for Jokowi, who is perceived as more business-friendly than Prabowo. The rupiah could run into some commercial demand for dollars toward the month-end, said a trader for a Japanese bank in Singapore. The overall preference among market players, however, now seemed to be tilted toward buying emerging market currencies, the trader added.
In addition to the rupiah, Asian currencies mostly pushed higher, including currencies such as the Malaysian ringgit and the Philippine peso. Investor interest in relatively high-yielding assets has been seen as a source of support for emerging Asian currencies recently, despite lingering worries about geopolitical tensions.
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