Rupiah Potentially Strengthening Driven By The Expetition Of The Fed's Interest Rate Reduction

JAKARTA - The rupiah exchange rate in trading Friday, August 30, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, August 29, 2024, the rupiah exchange rate on the spot market closed down 0.01 percent at the level of Rp15,423 per US dollar.

Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed up 0.43 percent to a price level of IDR 15,409 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said the US dollar is stronger against other currencies, as investors focus on the main inflation data from the world's largest economies to get clues about the huge potential for rate cuts by the Federal Reserve in September.

"Traders are also waiting for revenue from the artificial intelligence (AI) chip giant Nvidia, which has sparked craze on Wall Street and its surroundings in recent years. Dollars are also sensitive to movement in the equity market this year," he said in a statement, quoted Friday, August 30.

The latest dovish comments from the Federal Reserve reinforce expectations for a drop in interest rates in September, which is a good sign for the stock market.

Ibrahim said the focus this week is on US gross domestic product data and PCE price index data on the Fed's preferred inflation gauge for other economic signs.

The market expects an opportunity of around 63.5 percent to cut US interest rates by 25 basis points in September and a 36.5 percent chance of cutting by 50 basis points, according to the CME FedWatch.

In addition, Investors are waiting for the release of euro zone inflation data in August later this week, which could provide clues on the monetary policy path of the European Central Bank. Then next Tuesday, traders are betting the Bank of England will slow down in easing monetary policy rather than Fed.

From a domestic perspective, Bank Indonesia is confident that next year's rupiah exchange rate will strengthen in the range of IDR 15,300-IDR 15,700 per US dollar.

This figure is far from the projection of the Minister of Finance regarding the rupiah exchange rate target next year at the level of Rp. 16,100 per US dollar.

Ibrahim conveyed that the prediction was in accordance with the current fundamental conditions of the Republic of Indonesia, assuming that there were no geopolitical conditions or other conditions that could put pressure on the exchange rate in 2025.

"It must be remembered, the exchange rate in the past month has experienced appreciation, and today it is trading around Rp. 15,405 per US dollar. This figure has strengthened almost 5 percent and the strengthening is better than a number of other countries," he explained.

By the end of the year, BI predicts the exchange rate will be in the range of Rp. 15,700-Rp. 16,100 per US dollar.

BI is optimistic that the exchange rate will continue to strengthen, one of which is because foreign exchange reserves are increasing.

In July it reached 145.4 billion US dollars and this is more than enough to stabilize the rupiah exchange rate.

Ibrahim conveyed that the estimated stabilization of this currency was based on an assessment of fundamentals. The first indicator was due to a decrease in the US interest rate or this year's Fed fund rate (FFR).

The second is Indonesia's improved macroeconomic condition, such as inflation and economic growth. Then the yields of SBN and SRBI continue to be attractive. FFR is predicted to be cut twice this year.

Meanwhile, the Ministry of Finance set the rupiah in 2025 at IDR 16,100 per US dollar.

He said global volatility still overshadows the Indonesian economy, therefore the prediction of the exchange rate is corrected.

"Although the month-to-date has received an appreciation of the rupiah of 5 percent, so now it is at a level below Rp. 16,000. This target is a form of government caution," he said.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Friday, August 30, 2024 in the price range of IDR 15,350-IDR 15,460 per US dollar.