USD/JPY

On Monday, the dollar was traded slightly weakened compared to last week as investors reassessed the real market condition after the surprise hike of discount rate to 0.75 percent last week while the released data of rising U.S. inflation and consumer prices were also seen to provoke the return of risk appetite. Meanwhile, the dollar extended its losses broadly and traded lower to around 90.85 yen on Tuesday on speculation about possible overseas investor demand for the yen related to one of Japanese life insurer's planned IPO and talk of investment trust outflows into overseas markets. In fact, the yen may come under pressure in the near term depending on the size of yen-selling generated by the launch of various Japanese mutual funds or toushin this week. However, in the New York market afterwards, the yen rose against the dollar after U.S. consumer confidence fell to a 10 month low in February. The news have seen directly discouraged the risk appetite and drove the dollar up against the euro and other yielding currencies with stocks and commodities traded lower following by the red line in the Asian stocks on Wednesday. The yen was strengthened to 90.10 in the morning session and stayed at around 90.24 per dollar in the whole Asian trading. Furthermore, the dollar fell against the euro and the yen after U.S. Federal Reserve chief Ben Bernanke reaffirmed expectations that the bank would keep its benchmark interest rate exceptionally low for some time. In fact, a surprise drop in January new home sales in the U.S. has seen boosted investor outlooks for low rates as well. Additionally, worries on Greece's fiscal woes and a possible downgrade of Greece, with Standard and Poor's saying that it may cut Greece's BBB+ rating by one or two notches within a month, have driven the euro lower against the dollar and the yen on Thursday with selling flows mostly by Japanese names including exporters as well as long liquidation by hedge funds and stop loss selling. The euro hit 1.3452 per dollar in the Asian trading before it rebounded to $1.3477 level while the yen rose to 89.34 per dollar.

Forecast:

For the domestic market, one of the focuses will be on the development of whether Finance Minister Indrawati and Vice President Boediono can pull through unscathed from the bailout of Bank Century. In addition, BI rate decision together with Indonesia's CPI will be also interested to watch while it is expecting a rate hold given that inflationary pressures are still manageable and rate cuts have not filtered down to the ground. In the same time, investors will be also interested in looking at U.S.'s Nonfarm payroll figures next week.

Expected range for the week ahead: 89.00– 91.00

USD/IDR

On Monday, the USD/IDR was traded between 9288 and 9305 with not much movement for the whole day. In news, according to a senior official, Finance Minister has proposed to increase the budget deficit for 2010 to 2.2% of GDP from 1.6% previously. Meanwhile, the dollar was traded on a thin range but slightly higher between 9290 and 9319 compared to the previous day's ranging. Furthermore, On Wednesday, the dollar was traded on higher ranges between 9313 and 9340 with some end of month's corporate demand. In news, according to State Enterprise Minister Mustafa Abubakar, the government and BI are urging banks to reduce borrowing costs to boost growth in the economy. Separately, SBY coalition parties continue to assert Finance Minister Indrawati and Vice President Boediono wrongdoing in the bailout of Bank Century. In addition, Indonesia's central bank has announced a 1, 3, and 6 month SBI interest rate of 6.407%, 6.59367%, and 6.6926% respectively in an auction at the same day. On Thursday, the USD/IDR was even traded higher and hit the high of 9365 mostly affected by the plunge in euro which lifting most USD against the regional currencies higher. The pair was dragged lower to 9340 due to some intervention by the central bank before it closed at 9350 at the end of the day. In news, BI Deputy Governor Sarwono said that inflation should accelerate 0.3-0.4% in February and that the full year target of 4-6% us still within reach. Additionally, he also mentioned that BI does not see the need to raise its benchmark interest rate soon. Separately, Indonesia's Finance Minister Sri Mulyani Indrawati expects the 2010 budget deficit to be 2.1 percent of GDP.