Indonesian's currency rallied nearly 5 percent against the U.S. dollar over the past three weeks in the run up to the country's presidential election, but analysts say strength is unlikely to last.
The rupiah strengthened to 11,500 against the dollar early Thursday, its strongest level since late May, amid reports Governor Joko Widodo led most unofficial vote counts, although his rival disputed these counts. Official results aren't expected until after July 20. Meanwhile, Indonesian stocks surged nearly 3 percent to a one-year high early Thursday.
Widodo - commonly called Jokowi - has a corruption-free reputation and is seen as the more market friendly candidate. Expectations for his victory have therefore boosted the nation's stock market and currency.
"[We] expect short-term net positive impact on rupiah, but given the already sharp move in the past few days, some overshooting is not ruled out," said Helmi Arman of Citi Investment Research.
Citi said the currency's recent strength was unlikely to last, however, as attention turns back to the economy's worrying fundamentals.
"Under a six to 12 month horizon, we remain cautious given the rather slower-than-expected compression of the current account deficit," he added.
Indonesia's sizeable current account deficit - which currently stands at 3 percent of gross domestic product - was partly responsible for the rupiah's 21 percent decline against the dollar last year. Tackling the issue will be a key challenge for the new government.
Meanwhile, Ju Wang, Asian FX strategist at HSBC, told CNBC the rupiah could rise further on the likelihood of a Jokowi victory, but said the country's central bank would likely step in if strengthens much further.