According to Jeffrey MacAskill of Warwick Business School, the US Dollar May Rise Versus Rupiah Bank of Indonesia Could Intervene in Forex Market – Diversification and Strength versus the Rupiah. His paper has already been accepted by Asian Economic Journal, so read on if you are interested in Forex market dynamics and financial markets research.
Jeff uses China as an example of the diminishing strength of the Rupiah against the US Dollar. The Rupiah was stronger before the Asian Financial Crisis because it was holding its own against the US Dollar. We all know what happened there.
Thus, according to Jeff, there is a correlation between economic weakness and currency values. The weak economic state makes the currencies weaker, and then weak currencies make the currencies stronger. This is the global indicator for Forex trading.
But there is no global indicator for Forex trading. The trader will make a trade only based on local conditions. It is quite likely that strong economic policies at Indonesia could lead to a sharp rise in the dollar and a loss of US dollar trade.
In fact, Jeff sees a further weakening of the US Dollar – a fall of 10% by 2020 – and concludes that the US Dollar May Rise Versus Rupiah Bank of Indonesia Could Intervene in Forex Market – Diversification and Strength versus the Rupiah. He would be wrong to think that this is only a short-term fluctuation.
Most importantly, he is overlooking the capital account reform that Indonesia is undergoing. This is causing the two largest currency trades in Indonesia (NTT and BND) to increase their capital accounts. It is increasing their disposable capital.
Furthermore, the capital account reform is causing capital to flow to Indonesian businesses. So you have more foreigners buying assets from Indonesians. Thus, the exchange rate between Rupiah and USD is slightly less important than the increase in foreign currency investments.
However, he is overlooking the long run effect of Indonesia’s capital account reform. He focuses instead on a temporary rise in the US Dollar, which will disappear. This is definitely wrong and we should pay attention to this.
Indeed, currency values are determined by currency values, but the strength of the US Dollar has more to do with the strength of the US Dollar. We could also say that the strength of the US Dollar is determined by the strength of the US Dollar. In other words, there is a relationship between two things that are directly opposite each other, and both are determined by changes in demand for the goods and services that they are relative to other goods and services.
Jeff, unfortunately, does not see this relationship, and therefore he concludes that the Rupiah is vulnerable to weakness, which is wrong because it is the strength of the Rupiah that is causing the rise in the USD. But it is the strength of the USD that is causing the Rupiah to fall. If the strength of the USD leads to greater demand for Rupiah than the Rupiah weakens, there will be a rising demand for Rupiah, as the Rupiah weakens.
As a result, the Rupiah may rise or fall, but it will rise because of the demand for Rupiah that exists without the US Dollar. Thedollar will become stronger because the dollar is stronger. Thus, the Rupiah will depreciate and thus, we will lose the Rupiah.
The Rupiah is also influenced by the demand for goods that are traded in Rupiah. the supply and demand analysis of the currency is used to predict the value of the currency. The price of commodities is very easy to interpret with the help of the supply and demand.