Rupiah falls but may be nearing turning point

SINGAPORE: The Indonesian rupiah slipped on Monday ahead of short-term domestic debt redemptions later in the week, but improving liquidity and resilience in its offshore forwards may signal a turnaround.

Since September, the rupiah has suffered as hedge funds and mutual funds dumped the country's bonds, along with the currency, prompting the central bank to intervene, as the euro zone's sovereign crisis forced investors to take profits on winning trades this year.

Risky assets staged a broad recovery on Monday, helping the rupiah to stabilise.

In the non-deliverable forwards (NDFs) market, the one-month dollar/rupiah NDF fell 0.9 percent and eased 3.7 percent in the past week.

"IDR is quoted in a normal spread. Indicative prices and real prices are getting closer," said a Jakarta-based foreign bank dealer.

Traders had said last month when the dollar was surging against emerging market currencies that dealt rates for dollar/rupiah were diverging from indicative rates on trading platforms. They said this divergence was because dealers were trading between themselves without placing prices on platform screens to avoid attention from the central bank.

Bank Indonesia (BI) meanwhile was trying to offer dollars below where the market actually was trading, according to dealers and analysts.

"BI has been stifling the market via offering dollars to selected banks while the rest are being forced to scramble for dollars out in the open. This widened the indicative price and dealt rates, scrambling up the dollar/rupiah," said an analyst at an Asian bank, asking not to be identified given the sensitivity of the matter.

The central bank, which had intervened regularly in the currency and bond markets in September, denied the market talk that it sold dollars below market prices.

In the past several weeks, bid/offer spreads widened to 100-200 rupiah because of heavy bond outflows and thin liquidity. In an indication of improving liquidity, bid/offer spreads narrowed to 5 rupiah.

A total amount of 20 trillion rupiah ($2.25 billion) of central bank bills will mature on Thursday, with foreign holdings believed to be 7 trillion rupiah, IFR Markets reported.

SINGAPORE DOLLAR

Macro funds and interbank speculators bought the Singapore dollar on a view that the currency was oversold before a semi-annual policy meeting of the central bank on Friday.

The market has discounted some policy easing by the Monetary Authority of Singapore (MAS) on increased worries about the euro zone's debt crisis and a slowing global economy, analysts and dealers said.

It breached 1.2915 per US dollar, the 23.6 percent Fibonacci retracement of the move from 1.1993 to 1.3200. It has room to appreciate more, probably to 1.2739, the 38.2 percent retracement if there are more positive signs from Europe, dealers and analysts said.

"I think the market got too bearish and that MAS will still maintain a tightening bias," said Jonathan Cavenagh, foreign exchange strategist for Westpac in Singapore.

WON

The won strengthened past 1,172.2 per dollar, the 61.8 percent retracement of its depreciation from 1,150 to 1,208.2 on demand from offshore funds. Its 76.4 percent retracement is at 1,163.7.

Importers' dollar demands capped further strengthening in the won, for now, dealers said.

"I will short dollar/won on any rallies, given the trend of 'risk-on.' I don't see many exporters' deals, however, importers appeared to complete their dollar purchases for urgent needs," said a foreign bank dealer in Seoul.

PHILIPPINE PESO

Remittance inflows supported the Philippine peso , dealers said, while the peso found resistance around a Fibonacci retracement.

The peso strengthened to 43.35 per dollar, just below the 38.2 percent retracement of its weakening from 41.90 to 44.23.

Dealers saw possibilities of breaks in the retracement of 43.34, but some are looking for chances to sell the local currencies on rallies.

"I'm looking at a potential dip (in dollar/peso) up to 43.20. But I think at these levels would be a chance to buy as corporate demand might start to pick up already and with the market already square to slightly short," said a European bank dealer in Manila.

The peso also faces a 200-day moving average around 43.31.

Copyright Reuters, 2011