Heavy dollar buying weakens rupiah, rebound expected soon

Heavy dollar buying weakens rupiah, rebound expected soon

The Jakarta Post, Jakarta

The rupiah closed lower on Thursday, but dealers expect a rebound
soon on renewed confidence in the economy and its improving
macroeconomic fundamentals.

The local currency ended at Rp 8,510 against the U.S. dollar,
down from 8,455 a day earlier. Dealers attributed the decline to
heavy dollar buying by companies to repay off-shore debts and
import financing.

"It was more because of corporate action and had nothing to do
with our fundamentals, as investors have increasingly regained
faith in Indonesia's economy," a currency trader at a foreign
bank said.

Bank Indonesia's falling interest rate and a continued easing
of inflation should help maintain investor confidence, she said,
adding that the rupiah would also be supported by the swift
response of the government in tracking down those responsible for
the recent Marriott bombing.

She also brushed aside concerns the recent drop in the
Philippine peso would effect regional currencies, including the
rupiah.

"The main mover of the rupiah is domestic factors, not the
peso. If there is an external factor, it usually comes from the
U.S. dollar, not the peso."

The peso has been under pressure recently, mostly because of
domestic political turmoil, including a failed military coup.

With the peso struggling to regain its footing, President
Gloria Macapagal Arroyo warned on Wednesday the authorities would
crack down on currency spectators. She also pledged to strengthen
the country's monetary policies, signaling the seriousness of the
problems faced by the peso.

This has caused concern that the effects will spillover to
other regional currencies.

However, the dealer said these concerns were baseless.

"To say that the peso is contagious is an overstatement. Look
at the Thai baht, is it being hurt by the peso?" she asked.

The baht rose on Thursday to a 13-month high against the
dollar, boosted by encouraging economic data. It closed at 41.18
per dollar.

Another Indonesian dealer at a state bank said: "If we are
going to worry about external factors, we better focus our
attention on the U.S. economy."

"However, I am confident ... because currently holding the
rupiah is more profitable (than holding U.S. dollars), due to the
interest difference between the two currencies."

The interest difference currently stands at about 8 percent.