The Fed's Optimistic Market Will Not Rise Again, Rupiah Has The Potential To Strengthen

JAKARTA - The rupiah exchange rate in trading Thursday, May 16, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, May 15, 2024, the rupiah spot exchange rate closed higher by 0.45 percent to the level of Rp. 16,027 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed up 0.37 percent to a price level of Rp. 16,070 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said traders are also increasingly confident that the Federal Reserve will not raise interest rates further in 2024, following comments from Chairman Jerome Powell on Tuesday.

"This idea sparked a dollar weakening, even as factory inflation data for April came as a positive surprise," he explained in his official statement, quoted Thursday, May 16.

Powell's comments from the Fed, in particular that current monetary policy is tight enough to lower inflation, is the main driver of the dollar's decline.

But Powell also warned that the central bank lost confidence that inflation would ease quickly, and that price pressure could take longer to reach the bank's annual target of 2 percent.

His comments, plus the strong reading of the PPI, made the market alert to the possibility of reading the consumer price index in April potentially higher than expected, which will be released today.

Ibrahim conveyed that high signs of inflation are likely to further reduce the expectations of lower interest rates by 2024, thus providing strong prospects for the dollar.

In addition, the US imposes strict rates on major Chinese sectors such as electric vehicle batteries and semiconductors.

Ibrahim said this action is expected to trigger retaliation from Beijing and could trigger a heated trade war between the two countries with the world's largest economies, thus providing weak prospects for China.

From an internal point of view, the Central Statistics Agency (BPS) noted that Indonesia's trade balance again recorded a surplus of US$3.56 billion in April 2024. This surplus is lower than March 2024 which amounted to US$4.58 billion, according to analysts' expectations.

Although the April trade balance is a surplus, it has fallen both monthly and compared to the same period the previous year. The trade balance surplus is more supported by non-oil and gas of 5.17 billion US dollars with commodities that contribute primarily to mineral fuel, animal/drug fat and oil. iron and steel.

Indonesia's exports throughout April 2024 were recorded at 19.62 billion US dollars, a decrease of 12.97 percent compared to March 2024 which amounted to 22.54 billion US dollars. Meanwhile, compared to the same period the previous year, it rose 1.72 percent, which amounted to 19.28 billion US dollars.

Oil and gas exports were recorded at US$1.35 billion last month, up 5.03 percent from March 2024. Meanwhile, non-oil and gas exports fell 14.06 percent from US$21.25 billion to US$18.27 billion. According to the sector, exports of the processing industry were recorded at US$14 billion, mining and others US$3.97 billion, as well as agriculture, forestry and fisheries of US$290 million.

Meanwhile, for Indonesia's leading commodities such as coal, iron and steel, the export value increased in April 2024 compared to the previous month. Coal rose 1.84 percent from USD 2.56 billion to USD 2.61 billion.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Thursday, May 16, 2024, in the price range of IDR 15,970 - IDR 16,070 per US dollar.