Rupiah Surges Today to Complete Best Week Since January 2012

Indonesia’s rupiah had its biggest weekly gain since January 2012 after U.S. lawmakers vowed to continue talks on raising the debt limit, reducing the chance of a default and improving global risk sentiment.

The currency rose 1.1 percent today, the most since Sept. 19, to 11,368 per dollar as of 4:03 p.m. in Jakarta, prices from local banks show. That extended its weekly advance to 1.4 percent, the biggest since the five days ended Jan. 20, 2012. One-month non-deliverable forwards surged 2.5 percent today to 11,006 per dollar, the highest since Sept. 20 and 3.3 percent stronger than the spot rate, data compiled by Bloomberg show.

President Barack Obama pledged to keep talking with House Republicans to end the partial government shutdown and raise the debt limit before an Oct. 17 deadline to prevent non-payment on state borrowings. The rupiah’s relative-strength index, calculated on a monthly basis to smooth out volatility, reached the most oversold level in more than 15 years at the end of September, a signal to some traders that a rebound from its 17 percent drop in the first nine months of the year was imminent.

“Global uncertainty kept the rupiah from strengthening before, so this good sentiment paves the way for it to rise,” said Fahrudin Haris Prastowo, a fixed-income trader at PT Bank Rakyat Indonesia in Jakarta. “Exporters will wait for signs of the currency bottoming before selling dollars and it seems they are starting to see it.”

External Balance

A fixing used to settle the rupiah forwards was set at 11,068 per dollar today, from 11,222 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 40 basis points, or 0.4 percentage point, today to 15.14 percent, data compiled by Bloomberg show.

The nation’s current-account deficit at 2.5 percent to 2.7 percent of gross domestic product in 2014 would be “acceptable,” compared with 4.4 percent last quarter, Bank Indonesia Senior Deputy Governor Mirza Adityaswara said in Jakarta yesterday.

“Longer-term strengthening in the rupiah will be data-dependent, with all eyes on the external balance,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “Asian currencies across the board are rising as the U.S. debt ceiling discussion moves forward.”

Bank Indonesia set guidelines for individuals and companies, including state-owned firms, to hedge against currency swings, it said in an Oct. 9 statement. The rules are aimed at helping stabilize the rupiah, it said.

“We will see more impact on the volatility starting next month as local companies take out hedges,” Supaat said.

The yield on the government’s 5.625 percent bonds due May 2023 fell three basis points to 8.01 percent today, the lowest level since Sept. 24, prices from the Inter Dealer Market Association show. The yield dropped 10 basis points this week.

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