Strong buying pushes Asian currencies to further heights
Strong buying pushes Asian currencies to further heights
SINGAPORE (Dow Jones): Strong buying interest catapulted the Indonesian rupiah to its highest level in eight months during Asian trading hours on Wednesday.
The heavy demand for the local currency, which was variously attributed to domestic banks and corporations or to offshore hedge funds, at one point pushed the rupiah to a level of Rp 7,050 to the U.S. dollar, 8.5 percent above Tuesday's close and more than double its value just three months ago.
Should the current level of demand be sustained, some analysts see the rupiah strengthening further to Rp 6,000, a level many observers derided as wildly unattainable when in March the Indonesian finance ministry named it as the government's year-end exchange rate target.
"An exchange rate of Rp 6,000 is not unreasonable as a long term equilibrium level," said David Fernandez, regional economist at J.P. Morgan in Singapore.
Late in Asian trading the U.S. dollar was quoted at Rp 7,200, up a little from its earlier low, but still down steeply from Rp 7,650 late in Asia the previous day, and lower than any closing level since Feb. 11.
The rupiah's surge helped boost sentiment towards other Asian markets, as regional currencies ended the day higher throughout the continent.
"The picture is of Asian currencies maintaining their firm tone, supported by the strength of the yen and by the perception that the U.S. dollar faces repeated interest rate cuts down the road. On that basis the dollar bull run is probably over," said Daniel Lian, Singapore-based head of Asian markets research at ANZ Investment Bank.
Despite the impressive velocity of the rupiah's drive higher, market participants remain divided over exactly what forces have propelled the Indonesian currency upwards.
Some traders attributed the rally to market players attempting to front-run disbursements of assistance funding by the International Monetary Fund. Proprietary traders, they say, are buying rupiah in the expectation that the release of a further $1 billion early next month will further buoy the local currency.
Other market participants point the finger at offshore hedge funds, which they say are falling over themselves to buy rupiah in order to cut back the size of their highly geared long dollar positions.
Other traders, however, say it is Indonesian banks and corporations that have been caught on the wrong side of the market as the dollar has tumbled.
Prevented by their poor credit quality from borrowing dollars to service foreign currency-denominated debts, in recent months Indonesian banks had little option but to buy U.S. dollars at rates between Rp 12,000 and Rp 15,000. Now, say traders, a falling U.S. currency is forcing them to unwind those positions at a heavy loss.
Meanwhile, offshore investors are buying rupiah in order to purchase Bank Indonesia's short term notes, which carry a handsome 60 percent yield.
"The feeling is that there is sufficient stability to take advantage of the spectacular interest rates on offer," said Fernandez at J.P. Morgan.
Fernandez explained that the combination of assistance funding inflows with the cessation of outflows following Indonesia's debt restructuring deals has improved confidence in the rupiah, and that participants are returning to the market.
Among other regional currencies, the Philippine peso rose strongly, boosted by healthy flows of investment funds into both the equity and the debt market, according to market participants.
At the close of trading on the Philippine Dealing System, the U.S. dollar was quoted at 42.605 pesos, down from 42.880 pesos at Tuesday's close.
Against the baht, the U.S. dollar ended Asian trading at 37.82 baht, flat compared with the previous day's level.
Against the Singapore dollar the U.S. currency ended Asian trading at S$1.6196, down from S$1.6220 the day before, as the Singapore dollar faithfully tracked the movements of the yen.
In North Asia, both the new Taiwan dollar and the Korean won rose against the U.S. dollar.
At the close of trading in Taipei, the U.S. currency was at $32.843 New Taiwan dollars (NT), down from NT$32.987 on Tuesday. In Seoul, the dollar closed at 1,325 won, down from 1,328 won.