The Indonesian rupiah recovered from its lowest level in four months after the Federal Reserve said it will retain the low interest rate, spurring demand for assets from emerging markets.
The rupiah rose 0.5 percent to trade at 11,934 per dollar by 4:17 p.m. in Jakarta. The currency rose to 12,027 on Wednesday, its weakest level since February 13. The currency has lost 4.8 percent in the second quarter.
The Indonesian currency surged after Federal Reserve Chair Janet Yellen signaled yesterday that the bank expects to maintain the rates at the current levels for ‘”a considerable time” once the monthly bond purchases are phased out. Bank Indonesia also expects the current-account deficit to hover close to 3 percent this year, down from 3.26 percent last year.
Rising Crude Prices to Hurt Rupee
“Indonesia has a current-account deficit and lower rates in the U.S. mean, all else equal, it is easier to fund that deficit,” Jonathan Cavenagh, a currency strategist at Westpac Banking Corp in Singapore told Bloomberg. “The rupiah is benefiting from lower rates.”
Foreign investors also purchased a net of $192 million worth of Indonesian shares on Wednesday, the highest level in a month. Cavenagh predicts the rupiah to decline to 12,100 per dollar in July due to the effect of the rising oil prices. The Brent crude has surged 4.5 percent in June owing to the Iraqi violence that threatens to disrupt oil supplies.
The rupee’s one-month implied volatility, which measures the expected shifts in the exchange rate used to assign prices to options, rose 0.28 percentage point, or 28 basis points, to 9.92 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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