Written by Lukman Otunuga, Research Analyst at FXTM
Indonesia’s central bank kept key rates unchanged at 4.75% in July in an effort to maintain macroeconomic and financial system stability at home while monitoring risks abroad. Although the economic fundamentals of the largest economy in Southeast Asia continue to look encouraging, the central bank may be encouraged to adopt a passive stance in an effort to promote further stability.
The main event risk for Indonesia and its Rupiah on Tuesday will be the release of the Foreign Direct Investment (FDI) report for Q2. Market players will be paying close attention to establish whether the Indonesian sovereign rating to investment grade by S&P positively impacted FDI in the second quarter of 2017. A rise in foreign direct investment is likely to boost the bullish sentiment towards the Indonesian economy ultimately supporting both the Rupiah and Jakarta Composite Index.
Outside of Indonesia, much attention will be directed towards the upcoming Federal Reserve interest rate decision which could impact the Rupiah if the central bank maintains its bias towards raising US interest rates once more before year end. The expectations of higher US interest rates are likely to spark fears of capital outflows from Emerging Markets with the Rupiah and Jakarta Composite Index coming under pressure.
Markets cautious ahead of OPEC meeting
A sense of caution seems to be the theme for the financial markets as trading gets underway for the week, with investors braced and preparing for an incredibly busy week packed with both crucial economic reports and major risk events.
Asian stocks set the tone in early trade by trading mixed with European markets following a similar pattern ahead of the outcome of the ongoing OPEC meeting. With low oil prices still weighing on sentiment and increasing political uncertainty from the US denting appetite for riskier assets, Wall Street is at threat of coming under further pressure this afternoon.
It would likely take an unexpected surprise from the OPEC meeting to inspire some risk appetite back into the market, while any further concerns over political instability in Washington is seen as the likely catalyst to inspiring further demand from investors for safe-havens.
OPEC meeting in focus
Monday’s main course and potential market shaker will be the OPEC committee meeting in the Russian city of St Petersburg, where the cartel is expected to discuss compliance with the production cut deal. With the oversupply fears still a major theme that continues to punish oil markets, investors will be paying very close attention to see if anything is discussed about the rising output in Nigeria and Libya. Russia has already called on OPEC to cap output from Nigeria and Libya in the near future and it will be interesting to see if any new agreements are proposed for both nations to join the oil production cut agreement. Oil prices are at risks of trading lower if the OPEC meeting concludes with nothing new brought to the table. From a technical standpoint, WTI Crude remains under pressure on the daily charts and a breakdown below $45.50 should encourage a further depreciation towards $44.
Commodity Spotlight – Gold
Gold edged to a near four-week high at $1257 during Monday’s trading session on the back of Dollar weakness. With investors adopting a cautious approach ahead of an explosively data-packed and event-filled week, safe-haven assets such as Gold could come back into fashion. Although the rising prospects of tighter global monetary policy still have a grip on the zero-yielding metal in the longer term, short term bulls are currently in control. Technical traders may observe how Gold prices react to the $1260 resistance level this week. A break above $1260 should open a path higher towards $1268.