Rate of exchange fluctuations are influenced by market sentiments which were formed by the development of economic and noneconomic fundamentals in either domestic economy or worldwide economy, especially various macro economics news from United States of America. Market reacts toward surprises which were generated due to differences between actual data and market expectations (i.e., macro economics news by associated institutions). Market reactions would results in exchange rate corrections, that is either weakening or strengthening, which depends on the magnitude of differences between actual data and market prediction toward the data.

This study is aimed at analyzing reactions of exchange rates between Indonesia Rupiah (IDR) and Dollar of the United States of America (USD) toward macro economics surprises which came either from Indonesia or from the US. Surprises in this study include positive (good) and negative (bad) macro economics news which come from Indonesia and the US as well.

Secondary data  were used in this research,  in the form of daily data  exchange rate USD-IDR, and data of macro economic news from within country and from United States between year 1998-2006. Model research was developed  pursuant to model used by Galati and Ho ( 2001), Ehrman And Fratzscher ( 2004), and Laakkonen ( 2004). Analysis doubled linear regression and Error Correction Model were used in this research.

Results of the study indicated that macro economics surprises have significant effect on USD-IDR exchange rate; macro economics surprises from both domestic and the US have significant effect on USD-IDR exchange rate; and neither positive and negative macro economics surprises have significant effect on USD-IDR exchange rate.

KEYWORDS

exchange rates, news, good news, bad news