Update: Ringgit jumps most in 17 years as rupiah surges on stock inflows

[JAKARTA] The ringgit strengthened the most since 1998 as Malaysia reported its biggest trade surplus in nine months and crude oil prices climbed, while resurgent global demand for Indonesian assets helped drive the rupiah's biggest gain in six years.

The ringgit jumped 4.6 per cent to 4.1832 per dollar as of 4:04 pm in Kuala Lumpur, trimming its loss for the year to 17 per cent, data compiled by Bloomberg show. The rupiah surged 3.5 per cent to 13,771. Thailand's baht was Asia's next best performer with a 1.2 per cent advance.

"We'd always expected a turnaround for emerging currencies sooner or later, but never of this speed or scale," said Trian Fatria, treasury research analyst at state-owned PT Bank Negara Indonesia in Jakarta. "We keep revising our estimates and charts, but the rupiah has breached all its technical levels." Emerging-market assets are rallying this week after disappointing US jobs data on Friday prompted futures traders to almost rule out a Federal Reserve interest-rate increase in 2015. Foreign funds added US$82 million to their holdings of Indonesian shares in the last two days, which if sustained would lead to the first weekly inflows since July, exchange data show. Bets for a US rate increase before the end of 2015 are now 45 per cent, compared with 61 per cent on Oct 1.

"The market continues to expect the Federal Reserve to delay the lift-off, and that's benefiting emerging-market currencies," said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore.

Malaysia's currency, Asia's worst performer this year, is rebounding as higher oil prices shore up revenue for the region's only major oil exporter. Brent crude rose 0.6 per cent, adding to a 5.4 per cent advance on Tuesday, and data on Wednesday showed the nation's trade surplus climbed to a nine- month high in August.

An Indonesian policy package to be announced as soon as Wednesday will seek to lower fuel costs and boost bank lending, said President Joko Widodo. Bank Indonesia said last week it would start intervening in the currency forwards market to help stabilize the rupiah. The central bank has kept its benchmark interest rate at 7.5 per cent since February to rein in inflation and stem declines in the rupiah.

"A stronger rupiah may give Bank Indonesia more leeway to lower rates to spur growth, which would be positive for stocks and bonds as well," said Rangga Cipta, an economist at PT Samuel Sekuritas Indonesia in Jakarta. He said he expected the monetary authority to stay on hold this year and then cut by 50 basis points in 2016 starting in the second quarter.

Rupiah sovereign bonds advanced, pushing the 10-year yield down eight basis points to a seven-week low of 8.72 per cent, according to prices from the Inter Dealer Market Association. The yield has dropped 109 basis points in a six-day declining streak.

"We expect some profit-taking to take place in the next few days after the rally," said Dini Agmivia Anggraeni, a fixed- income analyst at PT Trimegah Securities in Jakarta. "Currency stability would be better for bonds, not that we dislike gains, but less volatility would be better."

BLOOMBERG