The value of the rupiah against the U.S. dollar slumped 29 points to USD 8999-USD 9019 per dollar, compared to the previous day's close of USD 8970-USD 8980.
Analyst Brothers Tbk PT Bank Association, Rully Nova said in Jakarta Tuesday, the rupiah began corrected, after the increase is quite sharp to be under USD 9000 per dollar. "We estimate the amount will still be under market pressure, because the players ahead of the Idul Fitri holidays tend to take it off to make a profit," he said.
In addition, the government also did not want the old overpaid amount under the figure of Rp 9,000 per dollar, because the government did not want to sacrifice the income from exports. "Action off the rupiah was also heed the positive factors that emerged in the external market," he said.
Amount should still be moving up, because of the positive factors is still emerging from the external market and stable interest rate (BI Rate) at the level of 6.5 percent. "We estimate the amount will still be corrected if the market participants to continue removing Indonesian currency," he said.
He said the market currently dominated by a selloff, despite the somewhat reduced market activity, since most perpetrators have left the market. "But a small portion is still playing in the market, because of foreign players are also still play the stock market so the stock price index (CSPI) has increased. Performer foreigners are still buying stocks cheap which is estimated to be strengthened which in turn re-released , "he said.
How to Play the Volatile Currency Markets
, On Saturday 11 September 2010, 11:11 SGT
Small investors are diving into foreign-currency trading at a time when it never has been riskier. There are, however, some strategies to tame the volatility—and even use it to your advantage.
Currency trading has surged this year, hitting a record $4 trillion traded a day, as big institutions and small investors look for investment opportunities abroad or seek to hedge against overseas turmoil.
Along with the surging volume has come volatility. Since the collapse of Lehman Brothers in 2008, the dollar has seen record volatility against the euro, according to London-based emerging-markets specialist Ashmore Group PLC—including six moves of at least 10%.
All that volatility is presenting trading opportunities. , head of currency strategy at J.P. Morgan Private Bank in New York, says she has been trading the ranges that many emerging-market currencies have found themselves in. She says she has been buying Brazil's real when it approaches its 52-week low of 1.89 per dollar, which it has done four times this year, and selling it as it nears its 52-week high of 1.71, which it has done twice this year. Likewise, she has been buying Mexico's peso at 13 per dollar and selling it at 12.50 to 12.20.
"We'll have markets up and down because of the unusual macro dynamics," Ms. Patterson says. "When we get into the ranges, we play the ranges."
The volatility also has made what would appear to be a straightforward bet against the dollar fraught with risk. Three factors tend to move currencies: the pace of growth, debt levels and interest rates. By those standards, the dollar should be falling against the currencies of emerging-market and commodity-producing nations.
But the dollar's role as a safe haven in times of turmoil has given it a boost this year, as Greece's debt crisis morphed into a euro crisis and then the U.S. economic recovery slowed to a near-standstill.
"Whenever there's panic in the world people buy the dollar," says , chief executive of Legend Financial Advisers in Pittsburgh. "Longer term, we look for it to fall."
One way for investors to hedge against the falling-dollar scenario, Mr. Stanasolovich warns, is to buy a basket of currencies, such as the widely used U.S. Dollar Index. But many professionals are wary of the index's large 57.6% exposure to the euro.
, principal at money manager Samson Capital Advisors in New York, says he uses the Federal Reserve's Major Currencies Dollar Index as a benchmark for his currency moves. The index weights the dollar against the most actively traded currencies of the U.S.'s major trading partners, with 37% in the euro, 30% in the Canadian dollar, 17% percent in the Japanese yen, 8% in the British pound, 3% in the Swiss franc, 3% in the Australian dollar and 2% in Sweden's krona.
The index has dropped 0.7% during the past 12 months, according to Federal Reserve data, compared with a 3.9% drop in the U.S. Dollar Index. It has gained 2.9% annually over the past three years, compared with a loss of 0.9% in the Dollar Index.
Volatility, meanwhile, has been a low 7.2%—around half the volatility of holding an individual currency. (The Federal Reverse index isn't an investable product, but investors can replicate it through currency ETFs or direct trading.)
In the shorter term, the dollar could keep strengthening. One way for investors holding foreign currencies to hedge against a rallying dollar is to buy insurance in the form of "dollar risk-reversals." These are a combination of put options, which give you the right to sell a currency at a set price, and call options, which allow you to buy a currency at a set price.
For many emerging market currencies, the strategy now is near its cheapest levels since the start of the credit crisis, says AG strategist .
Here is how it works: Investors sell a dollar put, which will lose money if a foreign currency strengthens against the greenback, and use the proceeds to buy a dollar call, which provides protection if the foreign currency depreciates against the greenback.
For example, selling a dollar-rand put with a strike price of 7.08 would offset the cost of buying a dollar-rand call with a strike price of 7.53 and protect an investor if the rand fell more than 4.1% against the greenback. The investor would lose money, however, if the rand rose 2.1% or more.
During the past five years, the profits from the dollar-risk-reversal strategy have been 1.3 times the losses, according to Deutsche Bank research.
"Not only is the insurance cheap," Mr. Marone says, "but if we go back to a period of stress, these currencies could be affected the most.
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