Rupiah Forwards Strengthen as Foreign Reserves Seen Increasing

Indonesia’s rupiah forwards strengthened amid speculation the central bank will report a second monthly increase in the foreign reserves. Government bonds advanced, pushing the 10-year yield to a one-week low.

Indonesia’s holdings of overseas currencies probably rose in September by between $1 billion and $3 billion, according to a forecast by PT Mandiri Sekuritas. The figures will be released no later than Oct. 7. The reserves dropped 18 percent this year as the central bank intervened to stem a 16 percent slide in the rupiah. The nation’s trade balance swung into surplus for the first time in five months in August and inflation slowed in September, official data showed this week.

“The series of positive news will reduce negative sentiment on the rupiah and see it stabilize and start to strengthen,” said Leo Rinaldy, an economist at Mandiri Sekuritas in Jakarta. “The trade balance and inflation have improved while foreign reserves probably rose, which is a leading indicator for September’s trade conditions.”

Rupiah one-month non-deliverable forwards rallied 0.9 percent to 11,396 per dollar as of 4:23 p.m. in Jakarta. The contracts touched 11,359, the strongest level since Sept. 27, according to data compiled by Bloomberg. The contracts are 1.1 percent stronger than the spot rate, which was little changed at 11,528 per dollar, prices from local banks show.

Weaker Dollar

Asian currencies rose today as the Bloomberg Dollar Index, which tracks the greenback against a basket of 10 leading global currencies, touched a two-week low. The U.S. government remained in partial shutdown, spurring speculation the Federal Reserve will hold off from scaling back monetary stimulus that has fueled demand for emerging-market assets.

A daily fixing used to settle the rupiah forwards was set at 11,281 per dollar today, from 11,371 yesterday, according to the Association of Banks in Singapore. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 35 basis points, or 0.35 percentage point, to 16 percent, data compiled by Bloomberg show.

Indonesia’s 5.625 percent bonds due May 2023 dropped two basis points to 8.15 percent, the lowest level since Sept. 25, according to prices from the Inter Dealer Market Association.

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