Rupiah Leads Weekly Advance in Emerging Markets on Fed Outlook

Indonesia’s rupiah led advances in emerging-market currencies this week on speculation the Federal Reserve will delay cutting stimulus. Government bonds rallied, pushing the 10-year yield to a three-month low.

The rupiah headed for its best five-day gain since June 2009 after global funds bought more local stocks than they sold this week through yesterday, the first net inflow in a month. The Fed will postpone a plan to pare its $85 billion a month of bond buying to March, an Oct. 17-18 Bloomberg survey showed, instead of December as predicted by a similar poll last month.

“We will probably see a further reprieve for the rupiah over the next one to two months as the market has pushed their expectation for Fed tapering into next year,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. Demand for emerging-market assets has improved as international “investors are looking for some additional yield to tide them over,” he said.

The rupiah strengthened 2.2 percent since Oct. 18 to 11,078 per dollar as of 9:48 a.m. in Jakarta, beating all 24 emerging-market currencies tracked by Bloomberg, prices from local banks show. One-month non-deliverable forwards rose 0.1 percent to 10,948, 1.2 percent stronger than the spot rate, according to data compiled by Bloomberg. The onshore spot rate rallied 0.7 percent today while the offshore contracts were little changed.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 139 basis points this week to 12.91 percent, data compiled by Bloomberg show. A fixing used to settle the forwards was set at 10,858 per dollar yesterday, compared with 10,866 on Oct. 18, according to the Association of Banks in Singapore.

Government Bonds

The yield on Indonesia’s 5.625 percent bonds due May 2023 dropped 30 basis points, or 0.30 percentage point, this week to 7.16 percent, the lowest level since July 23, prices from the Inter Dealer Market Association show. The cost to insure the nation’s debt against non-payment using five-year credit-default swaps fell nine basis points from Oct. 18 to 188 yesterday, the least since June 6, according to data provider CMA.

Overseas funds added 4.62 trillion rupiah ($414 million) to sovereign debt holdings through Oct. 23, official data show.

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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