Rupiah weakens by 0.46 per cent to Rp18,049 per US dollar on Thursday afternoon
The rupiah exchange rate closed lower by 0.46 per cent on Thursday afternoon, reaching Rp18,049 per US dollar from the previous level of Rp17,966 per US dollar. Money market analyst Ibrahim Assuaibi noted that the rupiah’s weakness was influenced by a combination of external and domestic sentiments weighing on its movement.
Externally, investors are exhibiting caution amidst escalating geopolitical tensions in the Middle East. While Washington announced a ceasefire agreement between Israel and Lebanon on Wednesday night, the deal remains contingent on Hezbollah ceasing hostilities. Tensions were further heightened by reports of Iranian missile attacks towards Kuwait and Bahrain, as well as US strikes on Qeshm Island in Iran near the Strait of Hormuz. Additionally, Israel has reportedly expanded military operations in southern Lebanon, targeting Hezbollah-controlled areas.
In the United States, the Republican-controlled House of Representatives has approved a resolution to limit President Donald Trump’s ability to continue military conflict with Iran, though the resolution still requires Senate approval and a two-thirds majority in both chambers to override a potential presidential veto. Market players are also awaiting the release of US employment data, specifically the non-farm payrolls report due on Friday.
Domestically, Ibrahim highlighted growing market concerns regarding the impact of surging crude oil prices on Indonesia’s fiscal and external sectors. High oil prices could potentially push the fiscal deficit towards the 3 per cent limit and pressure the external balance. Furthermore, the market is closely watching for potential increased government intervention in the commodities sector and the ongoing uncertainty regarding Indonesia’s market classification by MSCI. April trade data also indicated a narrowing trade surplus as rising oil imports outpaced export growth. Meanwhile, May inflation rose to 3.08 per cent, exceeding the midpoint of Bank Indonesia’s target due to higher import prices.
Another significant sentiment driver is the credit rating of PT Danantara Investment Management by Moody’s Ratings. The agency assigned a Baa2 rating to the company’s global medium-term note programme but assigned a negative outlook. Moody’s stated that this outlook reflects the strong link between Danantara Investment Management, the Danantara Investment Management Agency (BPI Danantara), and the Indonesian Government as the sole shareholder. Ibrahim noted that in the long term, the rating is likely to move in tandem with Indonesia’s sovereign rating, meaning Danantara’s rating could decline if Indonesia’s sovereign rating weakens.
Ibrahim expects the rupiah exchange rate to remain volatile in the next trading session, with the potential to close in the range of Rp18,050 - Rp18,120 per US dollar.