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Rupiah Poised for Weekly Gain as Trade Data Boosts Confidence

Indonesia’s rupiah was poised for its first weekly rally since Aug. 3 as a narrowing trade deficit and the central bank’s decision to hold interest rates bolstered confidence in Southeast Asia’s largest economy.

Government bonds advanced for a second week, pushing the benchmark 10-year yield to a one-month low, after foreign funds added 2.1 trillion rupiah ($219 million) to holdings of sovereign notes in the first three days of this week, finance ministry data show. The trade shortfall shrank to $177 million in July from an all-time high of $1.3 billion in June, official data showed last week, while Bank Indonesia held its policy rate at a record-low 5.75 percent for a seventh month yesterday.

“Improving economic data and steady borrowing costs will give investors more confidence to buy into Indonesia,” said Artanavaro Gasali, the Jakarta-based head of global markets at PT Bank ICBC Indonesia. “Bonds saw a rally across all tenors, but it remains to be seen if these inflows are here to stay.”

The rupiah strengthened 0.2 percent this week to 9,573 per dollar as of 9:21 a.m. in Jakarta, the biggest weekly gain since the five days ended July 6, prices from local banks compiled by Bloomberg show. The currency advanced 0.2 percent today after reaching 9,609 yesterday, the weakest level since May 31.

One-month implied volatility, which measures exchange-rate swings used to price options, fell one percentage point this week to 5 percent. It dropped 85 basis points today.

The yield on the government’s 7 percent notes due May 2022 dropped six basis points, or 0.06 percentage point, this week to 5.92 percent prices from the Inter Dealer Market Association show. That was the lowest level since Aug. 15. The yield declined one basis point today.

Overseas investors bought $79 million more local stocks than they sold this week through yesterday, according to exchange data. Bank Indonesia will take more steps if needed to improve the nation’s current account, which reached a record deficit of $6.9 billion in the second quarter, it said yesterday.

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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