Rupiah and Ringgit Have Best Weekly Gains in More Than a Decade

  • Fed speculation, rising share and commodity prices drive rally
  • Rebound isn't supported by fundamentals: Standard Chartered

The rupiah and the ringgit completed their best weekly gains since 2001 and 1998 respectively as Indonesia and Malaysia benefited from rallying share markets, rebounding commodity prices and signs the Federal Reserve won’t raise interest rates this year.

The rupiah jumped 3.4 percent to 13,428 a dollar in Jakarta, taking its advance this week to 9.1 percent, prices from local banks show. The ringgit rose 2.5 percent and 6.8 percent since Oct. 2 to 4.1325. They were up as much as 4.3 percent and 3.5 percent earlier on Friday. This week’s rally came after the Malaysian and Indonesian currencies lost 14 percent and 9 percent, respectively, last quarter.

Disappointing U.S. jobs data that pushed back expectations for when the world’s largest economy would raise borrowing costs spurred gains in emerging-market stocks and currencies this week and that was reinforced by the overnight release of minutes from the Fed’s September meeting. Resurgent oil and commodity prices have also benefited Malaysia and Indonesia, and traders have been unwinding bets that the nations’ currencies would keep falling through the end of the year.

“What we’re seeing is that people are continuing to cover their short positions in the two currencies,” said Divya Devesh, Standard Chartered Plc’s Asian foreign-exchange-strategist in Singapore. “It’s going to be critical to watch China data because that could be the turning point” and the rally isn’t supported by fundamentals, he said.

Bank Indonesia is comfortable with the current level of the rupiah as it’s still competitive for manufacturing exports and will help manage inflation, Senior Deputy Governor Mirza Adityaswara said by text message. The central bank said late last month that the currency’s fundamental value was 13,300 to 13,700 a dollar.

‘Dead-Cat Bounce’

The benchmark share gauge in Kuala Lumpur has gained 4.8 percent this week and the Jakarta Composite Index has surged 9.1 percent. Foreign funds bought a net $148 million of Indonesian stocks in the first four days of the week, set for the biggest inflow since April, exchange data show.

Brent crude is up 11 percent this week, while a Bloomberg index of raw materials has risen 4.1 percent. Malaysia, Asia’s only major net oil exporter, derives about 22 percent of state revenue from crude, while Indonesia’s economy is dependent on exports of coal, palm oil and metals.

The reliance on commodities has contributed to Malaysia and Indonesia being among the worst-affected Asian economies this year as growth in China slowed and the U.S. moved toward raising interest rates. Indonesian exports fell for 11 consecutive months through August, while investor confidence in Malaysia has been shaken by allegations of corruption against Prime Minister Najib Razak.

“What we’re having is a magnificent dead-cat bounce,” said Michael Every, the Hong Kong-based head of financial markets research at Rabobank Group. “The underlying problems have not gone away in any way, shape or form. We had maybe gone too bearish too quickly before but now we’re getting too bullish too fast.”

Fed Concerns

The Fed’s September minutes showed officials are concerned about China’s slowdown and the risk of the strengthening dollar weighing on U.S. exports.

Indonesian bonds have rallied this week, pushing the yield on the notes due September 2026 down 73 basis points to 8.65 percent, according to the Inter Dealer Market Association. The 10-year Malaysian yield fell two basis points to 4.12 percent, prices from Bursa Malaysia show.

The ringgit is still the worst-performing currency in Asia this year with a 15 percent decline, while the rupiah has dropped 7.6 percent. Overseas investors pulled around $2 billion from Indonesian stocks and local-currency sovereign bonds last quarter. Foreign funds have sold a net 18.3 billion ringgit ($4.4 billion) of Malaysian shares this year.

“Investors are rushing in to buy emerging-market assets that saw the biggest losses,” said David Sumual, Jakarta-based chief economist at PT Bank Central Asia. “The gains have been too fast and too steep, so some are bracing for an equally dramatic turn if sentiment were to turn for the worse.”

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