Rupiah weakens amid potential Fed monetary policy tightening

The exchange rate of the Rupiah against the US Dollar at the close of Tuesday’s trading moved lower by 3 points, or 0.02 per cent, to Rp17,981 per US Dollar compared to the previous close of Rp17,978 per US Dollar.

Currency analyst and Director of Laba Forexindo Berjangka, Ibrahim Assuabi, assessed that the Rupiah’s weakness is influenced by the potential for further monetary policy tightening by the Federal Reserve (The Fed).

“Due to high oil prices, market participants are pricing in further monetary policy tightening by The Fed, following the 25 basis point interest rate hike at its meeting on 15-16 September, which was the first rate hike in the last three years,” he stated in a written statement in Jakarta on Tuesday.

According to CME FedWatch data, the market currently sees a 70 per cent probability of an interest rate hike at the October meeting, following a series of hawkish statements from Fed officials last week.

Furthermore, the market is awaiting a much busier US economic agenda this week. Personal Consumption Expenditures (PCE) inflation data is scheduled for release on Wednesday (30/9), followed by ISM Manufacturing PMI data on Thursday (1/10) and the Nonfarm Payrolls (NFP) report on Friday (2/10).

Comments from Fed officials will also be closely monitored for clues regarding the central bank’s next policy steps.

Sentiment is also being shaped by potential further discussions between the US and Iran as part of efforts to end the war. Further talks are expected to focus on a revised version of the seven-day proposal submitted by Iran last week on the sidelines of the United Nations General Assembly.

“Iran’s seven-day plan includes a cessation of all hostilities in Iran and Lebanon, the unfreezing of billions of dollars in Iranian assets, an end to sanctions on Iranian oil, and the lifting of the US blockade on Iranian ports,” said Ibrahim.

Bank Indonesia’s Jakarta Interbank Spot Dollar Rate (JISDOR) also weakened today to the level of Rp17,998 per US Dollar from the previous level of Rp17,965 per US Dollar.