The Fed Gives Dovish Signal, Rupiah Has Potential to Strengthen

JAKARTA - The rupiah exchange rate on Tuesday, August 20, 2024, is expected to strengthen against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Monday, August 19, 2024, the rupiah exchange rate on the spot market closed up 0.91 percent at IDR 15,550 per US dollar. Meanwhile, the rupiah exchange rate at the Jakarta Interbank Spot Dollar Rate (Jisdor) Bank Indonesia (BI) closed up 0.79 percent to IDR 15,591 per US dollar.

Director of PT Laba Forexindo Berjangka Ibrahim Assuaibi said investors were betting on the dovish tone that emerged in the minutes of the July Federal Reserve policy meeting and Chairman Jerome Powell's upcoming speech in Jackson Hole.

"The minutes, which will be released on Wednesday, and Powell's speech on Friday are likely to be the main drivers of currency volatility this week," he said in his statement, quoted on Tuesday, August 20.

Ibrahim said the volatility at the time was compounded by a series of weaker-than-expected US economic data - in particular, a weak jobs report for July, as investors worried the world's largest economy was heading into recession and that the Fed was slow to ease interest rates.

In addition, traders had fully priced in a 25 basis point rate cut from the Fed in September, with a 24.5 percent chance of a 50 bp cut. Futures indicated an easing of more than 90 bps by the end of the year.

On the domestic side, and a deputy minister by President Jokowi in a cabinet reshuffle at the State Palace, Jakarta. This cabinet reshuffle is to support the transition from the Jokowi administration to the Prabowo administration.

Bahlil Lahadalia as Minister of Energy and Mineral Resources (ESDM), Rosan Roeslani as Minister of Investment/Head of BKPM and Supratman Andi Agtas as Minister of Law and Human Rights (Menkumham), and Angga Raka Prabowo as Deputy Minister of Communication and Informatics.

This reshuffle involves ministers close to PDIP Party and Megawati such as Yasona and Arifin being replaced by those closest to Prabowo and Jokowi. It is estimated that it will heat up the Jokowi-Megawati relationship which has long been fractured.

The appointment of Angga can help the Ministry of Communication and Information's currently very heavy tasks so that they can be completed quickly.

Meanwhile, a number of things that must be completed in a short time, namely derivative regulations and institutions for the implementation of Law Number 27 of 2022 concerning Personal Data Protection, accelerating the eradication of online gambling, improving the architecture and governance of national data, and utilizing artificial intelligence (AI) for public services.

Ibrahim estimates that the rupiah will fluctuate but close stronger in trading on Tuesday, August 20, 2024 in the price range of IDR 15,480 - IDR 15,590 per US dollar.