US Interest Rate Cut Wait Market, Rupiah Potentially Strengthens To Rp15,600 Per US Dollar

Rupiah and US dollars (Photo: intermediate)

JAKARTA - The rupiah exchange rate in trading Thursday, August 15, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, August 14, 2024, the rupiah exchange rate on the spot market closed down 1 percent at the level of Rp. 15,675 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed lower by 1.22 percent to a price level of Rp. 15,691 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi said producer price index data were weaker than expected on Tuesday raising hopes that inflation would subside, and the Federal Reserve would have more push to cut interest rates.

"The reading comes just before the inflation data for the consumer price index, which will be released on Wednesday, and is also expected to show inflation subsides in July, although few," he said in a statement, quoted Thursday, August 15.

Ibrahim conveyed the prospect of cutting interest rates presents a brighter outlook for the US economy, especially amid recent concerns that slowing growth would require further rate cuts from the Fed.

According to the CME Fedwatch, traders are slightly more inclined towards cutting 50 basis points in September than cutting 25 bps after Tuesday's data. In addition to inflation data, industrial production data and retail sales from the US and China will also be released this week.

The market is also awaiting further signs by Iran, which has vowed to provide a strong response to the killing of a Hamas leader late last month, which Tehran said was carried out by Israel. Israel neither confirmed nor denied its involvement.

The US Navy has deployed warships and submarines to the Middle East to strengthen Israel's defenses. Last night's report said Hamas had launched several rockets into Tel Aviv.

From the domestic side, the market responded positively after the government revealed that global economic conditions were experiencing a deep weakening condition. The manufacturing sector of Indonesia is one of the 'victims' due to the weakening.

Data from the Purchasing Manager's Index (PMI) released by S & P Global shows Indonesia's position is at the level of 49.3 in July 2024. This figure is the lowest in the last three years.

The weakening of manufacturing performance also occurred in superpower countries such as the United States at the level of 49.6 and China at the level of 49.8. This describes the global environment as unstable, even hot toach other. This causes the economy to relatively stop or stagnate.

There are many factors that cause the global economy to experience pressure. Among them, the most obvious is the US economic condition which is reportedly threatened with a recession.

Ibrahim conveyed this because financial market players estimate that the US will experience a hard landing experiencing high inflation. This is what happened last week which showed great volatility in terms of the US economy and its influence around the world.

Meanwhile, economic conditions in Europe are still observed to be vulnerable due to geopolitical sentiment and war between Ukraine and Russia. Then, China's economy experienced slowing growth in the second quarter of 2024 at 4.7 percent, including due to large domestic loan problems.

From a political perspective, the issue of war between Ukraine-Russia and the war of the Middle East which was still volatile after the killing of Ismail Haniyeh became a sentiment that shook global economic conditions. So that the global economy is expected to still slow down.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Thursday, August 15, 2024, in the price range of Rp15,600 - Rp15,710 per US dollar.