Raymond Lim, head of Asian bonds, said the current account deficit is also improving in both countries.
Since the beginning of the year, the Indian rupee and the Indonesian rupiah have outperformed currencies in other emerging markets such as Brazil, Venezuela, Russia and Ukraine, and they remain some of the highest yielding currencies globally, according to Lim.
However, year-to-date, both currencies are down about 5% versus the US dollar compared to the same period last year. Lim said that the strengthening US dollar is the reason for the currency weakness, not the economic fundamentals in India and Indonesia, which remain sound.
The weaker rupee and rupiah, combined with the interest rate differential of each the two countries against the US (5-6%), has created attractive investment conditions, according to Lim.
“This is an opportunity in the forex market,” he said in his outlook for the second quarter of the year.
Between the two currencies, Lim believes the Indian rupee will appreciate faster versus the US dollar in the near-term than the Indonesian rupiah as the pace of reforms and underlying economic growth is improving faster in India.