Rupiah Forwards Rise, Bonds Gain as Summers Quits Fed Chief Race

Indonesia’s rupiah forwards rose, reaching a record premium to the onshore spot rate, and government bonds gained after former Treasury Secretary Lawrence Summers quit the race to be the next Federal Reserve chief.

A Bloomberg Global Poll last week showed Summers would have cut stimulus more than current Fed Vice Chairman Janet Yellen, who is among the front runners to replace Chairman Ben S. Bernanke when his term ends in January. The Fed will probably trim its monthly bond-buying program by $10 billion to $75 billion this week, a survey of economists showed this month. Indonesia’s central bank unexpectedly raised the reference rate last week to support the currency.

One-month non-deliverable forwards rose 0.5 percent to 11,205 per dollar as of 5:35 p.m. in Jakarta, 1.6 percent stronger than the spot rate and the most in data tracked by Bloomberg going back to 2001. The contracts have traded 2.8 percent weaker than the spot price in the past two weeks. In the onshore market, the currency gained 0.3 percent to 11,378, after losing 2.1 percent last week, prices from local banks show.

“Summers is more conservative and would have been keen to reduce stimulus sooner as he thinks the U.S. economy has improved,” said Rully Nova, a foreign-exchange analyst at PT Bank Himpunan Saudara 1906 in Jakarta. “Continuing euphoria over Bank Indonesia’s responsiveness in raising rates to tackle inflation is also supporting the rupiah and bonds.”

Volatility, Fixing

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, fell 107 basis points, or 1.07 percentage points, to 17.37 percent, the least since Aug. 20, data compiled by Bloomberg show. A fixing used to settle rupiah forwards was set at 11,101 per dollar today, from 11,174 on Sept. 13, according to the Association of Banks in Singapore.

“It has become cheaper to hedge against the rupiah using one-month forwards,” said Andy Ji, a Singapore-based currency strategist at Commonwealth Bank of Australia. “Demand to guard against the rupiah’s downside has eased.”

The yield on the 5.625 percent notes due May 2023 fell 32 basis points to 8.03 percent, the lowest level since Aug. 16 and the biggest drop since July, according to prices from the Inter Dealer Market Association.

Before it's here, it's on the Bloomberg Terminal.