The Indonesian rupiah weakened within sight of six-month lows on Friday, dragged by falling offshore non-deliverable forwards and outflows from the local stock and bond markets. A sharp sell-off in stocks last week and rising yields in the bond market have made investors cautious about the near-term outlook of the currency after record inflows and double-digit returns in the last two years.
Local currency bonds, measured in US dollars, returned a mouth-watering 82 percent in the last two years and the stock market climbed by 46 percent in 2010 alone, prompting investors to pump in record sums and making it one of the top foreign-owned markets in the world.
But with inflation on the boil and the central bank yet to begin raising rates from financial crisis-level lows, analysts are growing wary of the market outlook in the near term. On Friday, the rupiah was changing hands at 9,060 per dollar, just shy of a July low of 9,087 hit earlier this month.
Trades in the rupiah were restricted between the 9060 to 9070 range with talk of central bank offers parked above the higher end. One-month dollar/rupiah NDFs were well bid, last around the 9130 per dollar handle. The ringgit ran into stiff resistance with central bank bids pushing it above implied NDF rates. Despite heavy selling by banks, the ringgit traded weaker on the day, with talk that the central bank mopped up $250 million around 3.0530 levels via currency intervention.
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