US Macroeconomic Data Index Slows, Rupiah Potential to Strengthen

JAKARTA - The rupiah exchange rate on Monday, August 5, 2024, is expected to strengthen against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Friday, August 2, 2024, the rupiah exchange rate on the spot market closed up 0.23 percent at IDR 16,200 per US dollar.

Meanwhile, the rupiah exchange rate at Bank Indonesia's (BI) Jakarta Interbank Spot Dollar Rate (Jisdor) closed up 0.05 percent to IDR 16,234 per US dollar.

Director of PT Laba Forexindo Berjangka Ibrahim Assuaibi said that weak US purchasing managers' indexes and labor market data raised concerns over a slowdown in the world's largest economy, and that the Federal Reserve's September interest rate cut could potentially be too late for the economy to achieve a soft landing.

"The weak data also came after the Federal Reserve flagged a potential interest rate cut in September, which made the market almost fully predict 25 basis points that month," he said in his statement, quoted Monday, August 5.

Ibrahim said the focus now turns to the upcoming nonfarm payrolls data for further cues on the US economy and a cooling labour market further boosting the prospect of a Fed rate cut.

In addition, the market is also cautiously observing developments in the Middle East, where the assassination of senior leaders of Iran-aligned militant groups Hamas and Hezbollah has sparked fears that the region could be on the brink of all-out war, threatening to disrupt crude oil supplies and transportation routes in the Strait of Hormuz.

From the domestic side, the Central Statistics Agency (BPS) stated that the condition of deflation or the decline in prices of goods that occurred for 3 consecutive months cannot be concluded as a decrease in people's purchasing power in the middle of this year.

Deflation in July 2024 occurred due to a decrease in the price of food commodities, ranging from shallots to broiler chicken, due to sufficient supply in the market.

According to the law of supply and demand, when supply is abundant and demand remains constant, prices will fall.

In July 2024, there was a monthly deflation of -0.18 percent. This continues the deflation trend that occurred in the previous two months, namely -0.08 percent in June 2024 and -0.03 percent in May 2024. The main commodities contributing to deflation include shallots (-0.11 percent), red chilies (-0.09 percent), tomatoes (-0.07 percent), and broiler chicken (-0.04 percent).

At the same time, inflation occurred in the education group by 0.69 percent with a contribution of 0.04 percent to general inflation.

Amalia estimates that the education group will continue to contribute to inflation in the next two months because it is still in the New School Year.

According to its components, core inflation in July 2024 was recorded at 0.18 percent (month-to-month) with a contribution of 0.12 percent.

The government-regulated component experienced inflation of 0.11 percent with a contribution of 0.02 percent. Meanwhile, the volatile food (VF) component experienced deflation of 1.92 percent with a contribution of 0.32 percent.

Ibrahim estimates that the rupiah will fluctuate but close stronger in trading on Monday, August 5, 2024 in the price range of IDR 16,160-IDR 16,230 per US dollar.