Rupiah weakens due to US-Iran tensions that increase energy prices
The conflict in the Middle East, particularly the tensions between the US and Iran, is driving up energy prices and increasing demand for the US dollar as a safe-haven asset.
Jakarta (ANTARA) - The rupiah exchange rate weakened by 108 points or 0.63 percent to Rp17,289 per US dollar on Thursday morning from the previous close at Rp17,181 per US dollar.
Research and Development Indonesia Commodity & Derivatives Exchange (ICDX) Muhammad Amru Syifa stated that the rupiah’s weakening was triggered by tensions between the US and Iran, which are pushing up energy prices.
“The conflict in the Middle East, particularly the tensions between the US and Iran, is driving up energy prices and increasing demand for the US dollar as a safe-haven asset,” he told ANTARA in Jakarta on Thursday.
Quoting Sputnik, US President Donald Trump said America is extending the ceasefire with Iran while maintaining a blockade on Iranian ports. By extending the ceasefire, Trump said it would give Iran time to submit an “integrated proposal”.
According to Pezeshkian, Iran always welcomes and remains open to dialogue and agreements. However, bad faith, encirclement, and threats from the US are the main obstacles to sincere negotiations.
Pezeshkian emphasised that the world is witnessing empty rhetoric full of hypocrisy and contradictions between claims and actions.
Due to the lack of common ground between the two parties, the second round of negotiation talks planned in Pakistan on Wednesday (22/4) has been postponed.
Brent crude oil was around $98.50 per barrel at 18:40 GMT on Tuesday (22/4), while the US benchmark West Texas Intermediate (WTI) rose to around $89.60 per barrel.
European natural gas prices also rose 8.2 percent, with TTF (Title Transfer Facility) futures contracts increasing to around $51.3 per megawatt-hour as markets factored in lower risks of deeper supply disruptions.
Other sentiment stems from expectations that the Federal Reserve will keep interest rates high for longer, further strengthening the US dollar and driving capital outflows from emerging markets, including Indonesia.
However, limited policy space due to inflation approaching the upper target limit and rising energy price pressures is making market responses cautious.
To dampen volatility, BI is said to have raised the threshold for Domestic Non-Deliverable Forward (DNDF) and swap transactions from the previous $5 million to $10 million per transaction.
BI Governor Perry Warjiyo stated that this policy aims to reduce pressure in the foreign exchange spot market while strengthening rupiah exchange rate stabilisation.
“The sharp weakening at today’s opening also reflects the domestic market’s reaction to evolving global sentiment, where demand for the US dollar has already increased,” Amru explained.
Overall, the rupiah’s weakening is seen as reflecting a combination of US dollar strengthening, rising global risks, and domestic policy space limitations. Although BI has strengthened stabilisation measures through foreign exchange interventions and DNDF policies, short-term pressures are still considered significant.
“Going forward, the rupiah’s direction will very much depend on geopolitical developments, the direction of Federal Reserve policies, and the effectiveness of domestic policy mixes in maintaining financial market stability,” said the ICDX Research and Development.