Market doubts that the Fed will cut interest rates by 50 bps, Rupiah has the potential to weaken

JAKARTA - The rupiah exchange rate in trading Tuesday, September 3, 2024 is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Monday, September 1, 2024, the rupiah exchange rate on the spot market closed down 0.45 percent at the level of Rp. 15,525 per US dollar.

Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed lower by 0.40 percent to a price level of IDR 15,536 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi said traders were reducing bets for the easing of aggressive policies by the Federal Reserve with a focus now turning to important US work reports later this week.

"The increase in long-term Treasury yields to the highest level since mid-August after the closely watched size of US inflation remained stable, reducing the need for Feds to cut interest rates by 50 basis points (bps) on September 18," he said in his statement, quoted Tuesday, September 3.

Traders currently expect a chance to cut the Fed interest rate by 50 bp this month by 33 percent, compared to the possibility of a quarter-point cut of 67 percent.

A week earlier, expectations for larger cuts were 36 percent.

US general holidays on Monday have the potential to slow down the start of the week to the dollar, analysts say, but in other days there will be a steady flux of macroeconomic data culminating in non-farm payroll data on Friday.

Economists surveyed by Reuters estimated an additional 165,000 jobs in August, an increase from an 114,000 increase in the previous month, and the unemployment rate fell to 4.2 percent.

From a domestic perspective, Indonesia's manufacturing Purchasing Manager Index (PMI) contracted deeper to level 48.9 in August 2024.

This index shows a sharp decline in operating conditions for 3 years.

Based on the latest S&P Global report, Monday, September 2, the index describing the national manufacturing activity fell from the previous month which was at the level of 49.3.

The decline in the economy of the Indonesian manufacturing sector in August 2024 was marked by a sharp decline in new demand and output for 3 years.

Production of new manufacturing and demand in August 2024 has decreased sharply since August 2021.

It's no surprise that the company responded by reducing employees.

The decline in foreign demand has also accelerated to the sharpest since January 2023.

Apart from the reduced export demand in general, some panelists report global shipping challenges burdening sales.

The weakening of new production and demand has caused layoffs (PHK) in Indonesian manufacturing sector factories.

In general, the staff structure level decreased for two consecutive months, although only a few.

It was reported that there were no substitutes for employees who left or the implementation of temporary layoffs because sales and production decreased.

The company also chose to reduce their purchasing activities in August, prioritizing inventory use as long as possible.

This means that input stocks have fallen for the first time in 1.5 and at the highest level since August 2021.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Tuesday, September 3, 2024, in the price range of IDR 15,510 - IDR 15,590 per US dollar.