(Aug 8): Indonesia’s rupiah strengthened past the key threshold of 16,000 per dollar following a weakening in the greenback and officials’ earlier moves to soothe investor angst over the incoming government’s fiscal policies.

The currency rose 0.6% to 15,933 per dollar Thursday, breaching the psychological level for the first time since May 22. The rupiah was among the worst-performing Asian currencies in the past year as concerns of a wider fiscal deficit rattled investors.

The rupiah is strengthening amid favorable global sentiment and domestic conditions including still strong economic growth and healthy foreign exchange reserves, said Edi Susianto, executive director for monetary management at Bank Indonesia. There’s room for further gains but “we should remain vigilant about potential geopolitical escalations in the Middle East and keep an eye on election developments in the US,” he said.

The rupiah has rallied more than 2.5% this quarter, putting it in the league of top performers in emerging Asia as president-elect Prabowo Subianto’s team sought to placate worries over the government’s debt and fiscal policies and pledged to maintain spending caps. The prospect of a US rate cut as early as September is also helping sentiment.

A fall below 16,000 per dollar may bolster the chance of a BI rate cut later this year, with the central bank viewing currency stability as a precursor to policy easing. The rupiah’s fundamental level is stronger than 16,000 per dollar, governor Perry Warjiyo said in June.

The currency could test the level for a bit and may not sustain a break, said Alan Lau, a strategist at Malayan Banking Bhd in Singapore. “We look to be in a period of heightened volatility amid the uncertainty regarding US election, seasonally weaker months for risk assets and concerns on US recessions.”

Uploaded by Magessan Varatharaja