After Prolonged Relief Rally, Indonesian Rupiah Starts Weakening Against US Dollar
When global markets became really confident that the US Federal Reserve would cut its benchmark interest rate in September 2024, there occurred a sort of relief rally that is visible in Chart A below. Amid the increase in risk appetite, Indonesian stocks and the rupiah rate strengthened. Chart A shows that this rally started in late-July or early August 2024.
During the rally the rupiah appreciated from around IDR 16,295 per US dollar to IDR 15,095 per US dollar, which is strengthening of more than 7 percent over a five-week period; an impressive performance.
However, matters clearly changed starting from the last week of September 2024. After reaching IDR 15,095 per US dollar on 25 September 2024, the rupiah slid quite heavily beyond IDR 15,400 per US dollar in early October 2024.
It is important to emphasize that the factors behind this sudden reversal are mostly from abroad, specifically the escalating situation in the Middle East where tensions (and violence) between Israel and Hamas, Hezbollah, and Iran are growing rapidly. Another factor is stronger-than-expected economic data in the US that dim hopes for aggressive rate cuts in the US.
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