T

he rupiah posted its biggest one-day decline in a month due to mid-year high dollar demand, as local units of foreign companies boosted greenback purchases to repatriate their earnings overseas.

On Wednesday'€™s trading, the rupiah fell 1 percent to close at 11,630 per US dollar, according to prices from local banks compiled by Bloomberg, the biggest daily drop for the rupiah since March 20, with its month-to-date decline now reaching 2.3 percent, the steepest monthly loss among Asia'€™s currencies.

In the offshore market, one-month non-deliverable forwards dropped 0.8 percent to 11,675, or 0.5 percent weaker than the onshore spot rate.

Bank Indonesia (BI) spokesperson Peter Jacobs said the rupiah'€™s fall was due to surging dollar demand as many local units of foreign companies swapped their rupiah earnings into dollars to be transferred to their headquarters offshore.

'€œHence, there should not be an unwarranted overreaction because the decline was mostly driven by seasonal factors, instead of economic fundamentals,'€ he said on Wednesday.

Peter said the central bank would remain in the market to stabilize the rupiah. However, he argued that BI would not intervene too much to a degree that it could affect the fundamental value of the currency.

'€œWe normally would intervene if the weakening was caused by speculative acts. But sometimes we allow the rupiah [to decline] if the circumstances are warranted,'€ the spokesman said.

Despite the decline, the rupiah is still by far among Asia'€™s best-performing currencies in 2014, having strengthened more than 5 percent in the year-to-date (ytd), thanks to an improvement in Indonesia'€™s economic fundamentals, notably the narrower current-account deficit.

The current-account deficit, the broadest measurement of trade, might shrink below 2 percent of gross domestic product (GDP) in the first quarter this year, Finance Minister Chatib Basri has predicted. The deficit widened to an historic high of 4.4 percent of GDP in the second quarter last year.

Analysts have said that the rupiah was also affected by uncertainty on Indonesia'€™s political front.

The unofficial results of the April 9 legislative election show that the Indonesian Democratic Party of Struggle (PDI-P), the next likely ruling party, could fail to secure a strong hand in the House of Representatives, as it is estimated to only garner 19 percent of the vote, well below its target of 27 percent.

'€œSince February 2014, the rupiah has rallied strongly against the US dollar from above 12,200 to below 11,300 due to pre-election optimism. As the party favorite the PDI-P received less votes than expected, profit taking has materialized,'€ Roy Wellington Teo, a senior foreign exchange strategist with ABN Amro Bank in Singapore, said
on Wednesday.

He forecast the rupiah to weaken to 11,750 per dollar within a one-month time frame due to negative sentiment from Indonesia'€™s political uncertainty, coupled with high month-end dollar demand from local importers.

Nevertheless, external factors were also at play behind the recent weakness in Asian currencies, with the rupiah particularly vulnerable to negative sentiment overseas, according to Andy Ji, a Singapore-based foreign exchange strategist with the Commonwealth Bank of Australia.

'€œHeightened geopolitical tensions in Ukraine continue to weigh on high-yielding currencies, such as the Indonesian rupiah,'€ he said on Wednesday.

Indonesia'€™s bonds saw a correction on expectations that the weakening rupiah would erode investors'€™ returns.