Indonesian Rupiah Advances as Investors Judge Losses Excessive

By Lilian Karunungan

March 3 (Bloomberg) -- Indonesia’s rupiah rose, reversing losses, on speculation investors judged recent declines excessive, given the central bank is supporting the currency.

The rupiah advanced as a technical indicator showed the Bloomberg-JPMorgan Asia Dollar Index, which tracks 10 of Asia’s most-traded currencies excluding the yen, may reverse a drop. Indonesia’s currency also strengthened on speculation the central bank will intervene to limit losses. Nine of the 10 currencies gained against the dollar today.

“We’ve seen a lot of profit-taking in dollar-Asia,” said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc. “That is also spilling into Indonesian markets. We are seeing some selling of dollars because the market has to some extent been caught long dollar-Asia.” Long positions are bets an asset’s value will rise.

The rupiah strengthened 0.5 percent to 12,020 per dollar as of 1:26 p.m. in Jakarta, according to data compiled by Bloomberg. It tumbled to 12,300 yesterday, the weakest since Feb. 18, and has weakened 9.3 percent this year.

The 14-day relative strength index of the Asia Dollar Index reached 21.92 yesterday before rising to 31 today. A level below 30 or above 70 shows a security may reverse direction. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a security, commodity, currency or index.

RBA Decision

“The central bank has been offering dollars in the market,” said Iwan Ridwan Gunandar, a currency trader at PT Bank CIMB Niaga in Jakarta. “Foreign banks have also been selling dollars to get rupiah.”

The rupiah also advanced after the Reserve Bank of Australia unexpectedly left borrowing costs unchanged today, halting its most aggressive interest-rate cuts.

“The RBA decision to keep interest rates on hold probably added to the bullish sentiment for Asian currencies because there was a feeling that maybe the worst is over,” Standard Chartered’s Harr said.

Non-deliverable forwards contracts signal traders are betting the rupiah will fall 3.3 percent to 12,410 per dollar in a month, compared with expectations for a rate of 12,588 yesterday. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date.

Central banks intervene by arranging purchases or sales of currencies to influence exchange rates.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net.