Bye Dollars! Rupiah Soaring This Week

Jakarta, CNBC Indonesia – Garuda’s currency successfully ended the last week of January below IDR 15,000. the rupiah managed to record a gain of 0.6% so far this week.

The rupiah exchange rate strengthened sharply against the United States (US) dollar in trading Tuesday (24/1/2023) to below IDR 14,900 / US $. Rp. 14,885/US$ to be preciseup 1.23% in the spot market.

Good news coming from Europe. Recent surveys show Europe could avoid a recession this year. All thanks to lower energy prices and the reopening of China’s economy.

A survey conducted by Consensus Economics showed that Europe is expected to record 0.1% growth this year.

The governor of the European Central Bank (ECB) at the World Economic Forum (WEF) in Davos last week also said that the face of the European economy is currently much better, not as previously feared.

This has improved the sentiment of market players, and can benefit the rupiah as an emerging market asset.

Unfortunately this reinforcement did not last long. The next day, Wednesday (25/1/2023) the rupiah weakened 0.5% to Rp 14,960/US$ on the spot market.

Nevertheless, the rupiah strengthened again, although only slightly on Thursday trade (26/1/2023).

The movement of the rupiah on Thursday was influenced by sentiment from outside and within the country. The Russo-Ukrainian war entered a new chapter after Germany authorized the delivery of Leopard 2 tanks to Ukraine to help the country repel Russian attacks. This made the sentiment of market players worse, which made the rupiah run wild.

In addition, market players are also waiting for the US central bank (The Fed) to raise interest rates next week. The market predicts the Fed will raise interest rates by 25 basis points, lower than the previous expectation of 50 basis points.

Then on the last trading day the rupiah ended trading at IDR 14,980 / US $, depreciating 0.23% on the spot market on Friday (27/1/2023).

The trigger was that the US dollar index was recorded to have strengthened 0.2% and continued 0.07% until this afternoon. The strengthening of the US dollar index occurred after the release of the US economy in the fourth quarter of 2022 which was reported to grow 2.9%, higher than expectations of 2.6%.

With strong economic growth, as well as the labor market, there is a possibility that the Fed will continue to be aggressive in raising interest rates by 50 basis points next week. Although, the market still expects the Fed to raise 25 basis points.

Market players will also wait for confirmation, so that the rupiah will still fluctuate with a tendency to weaken because it sees its current position at the strongest level for 3 months.

CNBC INDONESIA RESEARCH TEAM