(Bloomberg) -- The Indonesian rupiah is poised for its best week since January, as the nation’s bonds rally on rising inflows. Bank Indonesia said it is allowing the currency to strengthen.
The currency surged as much as 1% to 15,080 per dollar on Friday, bringing its gain this week to about 2.1%. That’s catapulted the currency to the top rankings in emerging markets. Meanwhile, the yield on 10-year bonds fell to the lowest in a year.
The case for Southeast Asia assets has rarely been stronger, as investors scoop up stocks, bonds and currencies on the promise of supersized returns as the Federal Reserve pursues monetary easing. In Indonesia, the central bank’s surprise interest-rate cut this week is adding to the appeal, with analysts predicting more.
“Rupiah strength is being backed by stronger interest for Indonesian government bonds,” said Alan Lau, currency strategist at Maybank in Singapore. Bank Indonesia is in a better position than peers to push ahead with more easing, which is boosting their allure, he said.
Indonesian bonds are set for a fifth month of net inflows, the longest streak since 2017.
Bank Indonesia is letting the rupiah strengthen and is not intervening in the market on Friday, Edi Susianto, executive director for monetary management, said in a mobile-phone message. The volatility is still manageable, he said.
Traders are eyeing the 15,000-per-dollar level as the next key resistance for the rupiah.
“Markets might continue to like rupiah, but turning more cautious with it marching towards a key psychological line of 15,000,“ said Jeffrey Zhang, a strategist at Credit Agricole CIB in Hong Kong.
--With assistance from Claire Jiao.
(Updates to add Bank Indonesia saying it will let rupiah strengthen in first and sixth paragraphs.)
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