Rupiah Strengthens Influenced by Prospects of US-Iran Peace Agreement

The market has responded positively to the rising prospects of a peace agreement between the US and Iran. Jakarta (ANTARA) - The rupiah exchange rate closed stronger on Thursday’s trading by 54 points or 0.31% to Rp17,333 per US dollar from the previous close at Rp17,387 per US dollar. Research and Development Indonesia Commodity & Derivatives Exchange (ICDX) Muhammad Amru Syifa stated that the rupiah’s strengthening was influenced by the prospects of a peace agreement between the US and Iran. “The market has responded positively to the increasing prospects of a peace agreement between the US and Iran,” he told ANTARA in Jakarta on Thursday. Citing Anadolu, the US and Iran are close to signing a one-page memorandum of understanding to end the war and establish a framework for more detailed nuclear negotiations. As reported by Axios, citing sources on Wednesday (6/5), the US hopes Iran will respond within 48 hours to key issues. There is no final agreement yet, according to the report, but this situation represents the closest the two have come to an agreement since the war began at the end of February. In the draft agreement, Iran is asked to suspend nuclear enrichment, the US must lift sanctions and release frozen funds, and both must ease transit restrictions in the Strait of Hormuz. The report also mentions that US President Donald Trump has delayed new operations in the Strait of Hormuz to maintain the ceasefire due to progress in negotiations. The draft memorandum of understanding, containing 14 points, is being negotiated by two of Trump’s envoys, Steve Witkoff and Jared Kushner, along with several Iranian officials. The negotiations are conducted both directly and through mediators. The draft also includes stopping the war and initiating a 30-day negotiation period regarding reopening the Strait of Hormuz, limiting Iran’s nuclear programme, and lifting sanctions. Further negotiations may take place in Islamabad or Geneva. During that period, Iran’s shipping restrictions and the US sea blockade will be gradually eased. “The easing of geopolitical concerns in the Middle East region is driving a decline in demand for the US dollar as a safe-haven asset, thereby supporting the strengthening of emerging market currencies, including the rupiah. In addition, the weakening of the US dollar index and the correction in global oil prices are also alleviating pressure on the rupiah exchange rate,” Amru explained. The market is also beginning to anticipate that the Federal Reserve will adopt a more cautious stance on interest rate policy, especially after global inflation pressures show signs of easing. Nevertheless, he continued, market participants are still inclined to await the release of US Nonfarm Payrolls data scheduled for Friday (8/5), as this data could determine the short-term direction of the US dollar’s movement. Looking at domestic sentiment, Amru said, positive effects come from stabilisation measures taken by Bank Indonesia (BI) together with the government through interventions in the foreign exchange market and policies tightening dollar purchases without underlying. BI Governor Perry Warjiyo assessed that the current rupiah is below its fundamental value or undervalued, thus still having room to strengthen in line with solid domestic economic fundamentals. In addition, market attention is also focused on the government’s efforts to expand currency swap cooperation with several partner countries to strengthen liquidity and maintain rupiah stability. “Optimism towards the prospects of national economic growth, relatively controlled inflation, and the resilience of Indonesia’s economic fundamentals are also factors supporting the rupiah’s strengthening amid global uncertainties,” he said. The Jakarta Interbank Spot Dollar Rate (JISDOR) from Bank Indonesia on Thursday also moved stronger to Rp17,362 per US dollar from the previous Rp17,405 per US dollar.