Rupiah Weakens Under Pressure from Middle East Geopolitical Uncertainty

Jakarta (ANTARA) - The rupiah exchange rate against the US dollar weakened by 2 points, or 0.01 percent, to Rp17,879 per US dollar at the opening of trading on Thursday, compared to the previous close of Rp17,877 per US dollar.

Muhammad Amru Syifa, Research and Development at the Indonesia Commodity & Derivatives Exchange (ICDX), stated that the rupiah weakened as it continues to face pressure from geopolitical uncertainty in the Middle East.

“The rupiah is still facing pressure from geopolitical uncertainty in the Middle East, particularly developments regarding Iran and the Strait of Hormuz, which could potentially affect energy supplies and prices,” he told ANTARA in Jakarta on Thursday.

Citing Anadolu, Iran has set six conditions that must be met by the US for the Strait of Hormuz to be reopened. These include ending threats against Iran’s supreme leader, permanently halting military actions against Iran and its allies in the region, withdrawing all US naval and air forces involved in the blockade against Iran, providing compensation for losses suffered by Tehran during the recent conflict, lifting US sanctions, and releasing frozen Iranian assets.

Iran is also preparing a draft law that would prohibit military and commercial vessels from countries deemed “hostile” from entering the Strait of Hormuz without Tehran’s approval.

Another sentiment came from the release of the US Consumer Price Index (CPI) for July, which rose 0.1 percent month-on-month and 3.4 percent year-on-year. Both figures were in line with market expectations.

Core inflation, which excludes volatile food and energy components, increased 0.2 percent monthly and 2.5 percent annually. The annual inflation rate, both for headline and core inflation, eased slightly compared to June.

Following the data release, money markets increased speculation that the Federal Reserve will maintain its policy rate at the September meeting. Fed Fund Futures now price in a roughly 60 percent probability that the central bank will keep the benchmark rate in the 3.5-3.75 percent range, compared to a 45 percent probability predicted the previous week.

“In the short term, the rupiah is expected to move in a consolidative pattern with limited strengthening potential in the range of Rp17,750 to Rp17,850 per US dollar,” Amru stated.