Indonesia’s rupiah forwards fell the most in three weeks and government bonds declined before the Federal Reserve starts a meeting today to decide whether to cut stimulus that has buoyed demand for emerging-market assets.
The U.S. central bank will probably reduce its bond purchases to $75 billion a month, from $85 billion currently, according to a Bloomberg survey this month. Global funds pulled 790 billion rupiah ($70 million) from local-currency government bonds this month through Sept. 11, finance ministry data show. Bank Indonesia raised its policy rate by 1.5 percentage points in the last three months to help narrow the current-account deficit, which was a record $9.8 billion in the second quarter.
“The outlook for the rupiah, as with other emerging-market currencies, is really dependent on how much the Fed is going to do,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore. “We still need to see an improvement in the external balance numbers.”
Rupiah one-month non-deliverable forwards slid 1.6 percent to 11,388 per dollar as of 9:28 a.m. in Jakarta, the biggest drop since Aug. 27, data compiled by Bloomberg show. The contracts traded 0.4 percent stronger than the spot rate, which fell 0.4 percent to 11,418, according to prices from local banks. The forwards have traded 3.3 percent weaker on average than the spot rate over the past month.
One-month implied volatility on the rupiah, a measure of expected moves in the exchange rate used to price options, rose 16 basis points, or 0.16 percentage point, to 17.53 percent, data compiled by Bloomberg show. A fixing used to settle the rupiah forwards was set at 11,101 per dollar yesterday, according to the Association of Banks in Singapore.
The yield on the 5.625 percent bonds due May 2023 climbed eight basis points to 8.11 percent, according to prices from the Inter Dealer Market Association.
To contact the reporter on this story: Yudith Ho in Jakarta at firstname.lastname@example.org