Rupiah Trades Near 7-Month Low as Funds Dump Assets on Europe
Indonesia's rupiah traded near a seven-month low as foreign funds dumped the nation's assets on concern Europe's sovereign-debt crisis will slow global economic growth, hurting exports from Southeast Asia's biggest economy.
The currency dropped a second day as the MSCI Asia-Pacific Index of regional stocks snapped a two-day advance. Overseas investors cut their holdings of Indonesian government bonds by 2.1 percent to 245.92 trillion rupiah ($27.8 billion) in the first three days of last week, debt management office data show. Foreign funds sold $411 million more local shares than they bought last week, according to exchange data.
"The market is cautious on what is going to happen in the euro zone," said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore "That is keeping Asian currencies under pressure including the rupiah. Bank Indonesia has been active to smooth the flows in the currency."
The rupiah fell 0.7 percent to 8,861 against the dollar as of 8:44 a.m. in Jakarta, according to data compiled by Bloomberg. Bank Indonesia Deputy Governor Hartadi Sarwono said Sept. 14 the central bank intervened in the rupiah and bond markets to curb declines after the currency weakened as much as 2.6 percent that day.
German Finance Minister Wolfgang Schaeuble and Bundesbank President Jens Weidmann rejected on Sept. 16 using the European Central Bank to boost the euro-area rescue fund's firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner.
Eoin Treacy's view The common thread running through concerns
about the USA's deficits, the Eurozone's sovereign debt crisis, the tsunami's
impact on Japan's economy, China and India's monetary tightening and high energy
prices is slowing global economic growth. It is not a coincidence that industrial
shares were among the hardest hit in August.
The majority of stock markets have experienced steep declines. If nothing else this weighs on investor confidence. The strength of US Treasuries, Gilts, Bunds etc. reflects the perception that they offer a safe haven. Gold has also been considered a safe haven but could come under additional pressure if the US Dollar continues to strengthen.
While the USA has its own problems, it is comparatively unaffected by the potential Greek default. The US Dollar, having ranged for a number of months, has broken back above the 200-day MA against the Euro, Swedish Krona, Norwegian Krone, Singapore Dollar, Indonesian Rupiah, Taiwan Dollar, South African Rand, Brazilian Real, Australian Dollar, Mexican Peso and a number of others.
The Dollar Index, Asian Dollar Index and Latin American Dollar Index all share a similar pattern of resurgent demand for US Dollars. Clear downward dynamics, across a wide number of these currency pairs would be required to suggest improving investor confidence in the global economic growth story.