Rupiah breaks 7,000 against U.S. dollar

JAKARTA (JP): The rupiah continued to gain ground against the U.S. dollar on Tuesday, passing the crucial 7,000 psychological level for the first time since early February of last year on signs of improvement in the country's economic fundamentals.

Currency dealers were surprised by the breakthrough, which they said occurred quicker than expected. The rupiah closed 4.3 percent higher at Rp 6,800 to the greenback on Tuesday, its highest level since February 1998.

"It is just difficult to explain today's surge through fundamental analysis. The rupiah's movement was due to pure market sentiment, much influenced by early day trading," a dealer at a major local bank said.

The dealer said the 7,000 level was broken in morning trade, which triggered panic dollar selling.

Another dealer said optimistic comments on the rupiah by the International Monetary Fund and senior government officials in the past week heightened positive sentiment of recent weeks.

The rupiah has fared well since the relatively peaceful general election on June 7.

"Should the strong rupiah be sustained through the rest of the year, we could see the rupiah trading at between Rp 6,000 and Rp 6,500 to the dollar, and next year at Rp 5,000," he added.

He warned that the political situation would play a major role in deciding if the rally could be sustained.

"We still have the legislators' general session to elect the new president."

The country also must service its huge debt obligations.

"The success of debt restructuring is critical as to balance out some of the pressure (of buying dollars for debt repayment) well into the future."

Several export-oriented companies expressed concern that the robust rupiah would erode their earnings and push up production costs.

But chairman of the Indonesian Chamber of Commerce and Industry Aburizal Bakrie said businesses would remain competitive as long as the currency did not surge to below Rp 6,000 to the U.S. greenback.

"The range of Rp 7,000 to Rp 6,000 is ideal for businesses, especially those with huge bad debts," he said.

The Jakarta Stock Exchange Composite Index increased slightly in active trading, to 710.68 from 716.46 on Monday, despite the fall in prices of several blue chips.

Trading value reached Rp 1.09 trillion on 2.3 billion shares traded.

Recent bullish sentiment finally took a breather when the rupiah's rally provoked selling of shares of dual-listed companies, including state-owned telecommunications company Telkom and international call operator Indosat.

"But at the same time, the strong rupiah triggered buying in small capitalized companies," a dealer said.

Telkom ended down 4 percent, or Rp 200, at Rp 4,800 and Indosat fell 2.4 percent or Rp 375 at Rp 15,225.(udi)