Rupiah strengthens alongside declining expectations of Fed rate hikes

Jakarta (ANTARA) - The rupiah exchange rate against the US dollar closed stronger by 84 points, or 0.47 per cent, at Rp17,882 per US dollar at the close of trading on Friday, compared to the previous close of Rp17,966 per US dollar.

Currency analyst and Director of Laba Forexindo Berjangka, Ibrahim Assuabi, stated that the rupiah’s strengthening was influenced by declining expectations of a Federal Reserve (The Fed) interest rate hike.

“Lower inflation data has reduced the expectation of further interest rate hikes this month. The market now estimates the probability of a hike in October at only around 26 per cent, a sharp decline from 69 per cent in the previous week,” he said in a written statement in Jakarta on Friday.

Citing Xinhua, the US Personal Consumption Expenditures (PCE) price index rose 3.4 per cent year-on-year in August. This figure was below the consensus forecast of 3.7 per cent.

The US core PCE price index, which excludes volatile food and energy prices, rose by 3 per cent. This was lower than the expected 3.3 per cent increase and reflects a decline from the 3.3 per cent position recorded in July.

On a monthly basis, core PCE rose by 0.2 per cent, a slight decrease of 0.1 percentage points from the previous month and below the projected increase of 0.3 per cent.

In addition, US tensions with Iran continue to escalate following threats from US President Donald Trump, who plans to launch bombing attacks against Iran in November, following the US midterm elections in that month.

“The potential escalation of this conflict is causing market participants to continue monitoring the Strait of Hormuz, a vital shipping lane for global energy supplies. This makes inflation risks tend to increase, supporting the argument for tighter monetary policy,” said Ibrahim.

Bank Indonesia’s Jakarta Interbank Spot Dollar Rate (JISDOR) also moved stronger to the level of Rp17,898 per US dollar from the previous Rp17,937 per US dollar.