Rupiah Falls as Companies Take Advantage of Rally to Buy Dollars

Indonesia’s rupiah declined on speculation local companies are taking advantage of yesterday’s biggest rally since September to buy dollars at a more favorable exchange rate.

The rupiah surged 1.6 percent yesterday after official data showed the trade balance swung to a $42.4 million surplus in October, compared with the $775 million deficit estimated by economists surveyed by Bloomberg. The U.S. Institute for Supply Management’s factory index climbed to the highest in more than two years in November, a report showed yesterday, boosting the chance the Federal Reserve will start paring monetary stimulus.

“Demand for dollars is still there so companies will buy whenever they can,” said Billie Fuliangsahar, Jakarta-based head of treasury at PT Rabobank International Indonesia. “The trade data shows progress in narrowing the current-account gap, so the rupiah can strengthen unless the Fed starts tapering.”

The currency dropped 1 percent to 11,885 per dollar as of 4:05 p.m. in Jakarta, after falling as much as 1.5 percent earlier, according to prices from local banks. In the offshore market, one-month non-deliverable forwards declined 0.8 percent to 11,890, data compiled by Bloomberg show.

The rupiah at 11,000 to 11,500 per dollar is suitable for current economic conditions, Bank Indonesia Senior Deputy Governor Mirza Adityaswara said in Jakarta today. A deeper depreciation could weaken the economy, he said.

The government is due to sell 4 trillion rupiah ($336 million) of debt today in its last scheduled auction for this year. The yield on the 5.625 percent sovereign bonds due May 2023 fell three basis points to 8.59 percent, prices from the Inter Dealer Market Association show.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, climbed five basis points, or 0.05 percentage point, to 14.72 percent. A daily fixing used to settle the rupiah forwards was set at 11,740 per dollar today, from 11,721 yesterday by the Association of Banks in Singapore.

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