Indonesia Rates Seen Rupiah’s Savior From Slump: Market Reversal

Support for Indonesia’s rupiah, Asia’s worst-performing currency this month, is building as the nation’s assets attract funds from abroad and trading patterns suggest its decline is overdone.

The rupiah has fallen 1.8 percent this month, breaching the limit of its Bollinger band as it touched a seven-week low of 11,658 per dollar on April 23, according to data compiled by Bloomberg. The relative-strength index is also approaching levels that suggest a turnaround is likely, just as exchange data show overseas investors have been net buyers of Indonesian stocks for the past seven days and the country’s rupiah bonds head for a fourth month of inflows.

After posting its strongest quarterly gain since 2009, Indonesia’s currency has weakened in April on concern data next month will show the current-account deficit widening. Traders are speculating this will be offset by investors seeking to benefit from the nation’s relatively high interest rates.

“The pace of rupiah declines recently was quite fast so it’s not a surprise to see the move halting,” Koji Fukaya, chief executive officer and foreign-exchange strategist at FPG Securities Co. in Tokyo, said in a phone interview yesterday. “U.S. interest rates are unlikely to rise soon, while Indonesia offers higher yields. So I don’t see the rupiah being sold aggressively from here.”

The dollar-rupiah rate breached the end of its Bollinger band on April 23, and traded near the upper limit today, signaling the Indonesian currency’s decline may be overdone.

Relative Strength

Developed by John Bollinger in the 1980s, the bands are used by technical analysts to identify the turning point in an asset’s trajectory. The limits represent two standard deviations from the 20-day moving average, implying that the likelihood of a currency moving outside the band is small.

The dollar’s 14-day relative strength index against the rupiah reached 67 on April 23, approaching the 70 threshold that suggests the greenback’s gain has been excessive.

Indonesia’s bond market attracted 12.17 trillion rupiah ($1.1 billion) from overseas investors this month through April 22. Its 10-year notes pay 7.94 percent compared with 2.67 percent for similar-maturity U.S. Treasuries. Among Asia’s 10 largest economies, only India’s 8.87 percent yield exceeds Indonesia’s, while the next highest is the 4.41 percent offered by Philippine debt.

Trade Balance

The shortfall in the nation’s current account, the broadest measure of trade, probably exceeded 2 percent of gross domestic product last quarter, compared with 1.98 percent in the previous three months, central bank Governor Agus Martowardojo told Bloomberg TV Indonesia last week. Indonesia banned the exports of unprocessed mineral ores in January to encourage domestic investment in smelters.

The rupiah has also suffered as early results from an April 9 parliamentary election cast doubt on the outcome of July’s presidential vote. No party won the minimum level of support required to nominate a presidential candidate on its own, according to an unofficial tally.

The dollar rebounded to a 38.2 percent reversal of its decline from this year’s high of 12,285 against the rupiah on Jan. 7 to a 2014 low of 11,254 on March 17 based on a Fibonacci chart. Fibonacci analysis is based on the theory that prices move by a certain percentage after reaching a high or low.

The dollar’s 20-day period commodity channel index against the rupiah rose above 100 this week, suggesting the U.S. currency was overbought, climbing to 146 today.

The rupiah rose 0.3 percent today, the most in more than three weeks, to 11,565 per dollar as of 4:34 p.m. in Jakarta, according to prices from local banks. It is still the best performer among Asia’s 11 most-traded currencies this year, gaining 5.2 percent. It plunged 21 percent, the most since 2000.

“The rupiah’s weakness is only a correction,” Pak Lai Ng, a Singapore-based technical analyst at Forecast Pte, said in a phone interview yesterday. “It should strengthen again once it reaches 11,700.”

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