Indonesian Rupiah Starts Feeling Comfortable at Rp 14,000 per US Dollar

The potential for further interest rate hikes by the U.S. Federal Reserve (The Fed) in response to rising inflation has created uncertainty in the global financial market. This is further compounded by the threat of a trade war, making U.S. dollar-denominated assets attractive to investors. The Indonesian Rupiah (IDR) has not been immune to these effects, experiencing significant fluctuation and weakening, trading above Rp 14,000 per US dollar since June 21, 2018.

According to Bloomberg data, the Rupiah exchange rate in the spot market closed at Rp 14,385 per US dollar on Thursday, July 12th. Furthermore, in the non-deliverable forward (NDF) market, the Rupiah was traded at Rp 14,438 per US dollar for one-month contracts and Rp 14,574 per US dollar for three-month contracts.

A trade and current account deficit has resulted in a tight supply of US dollars in the domestic market. Exporters are also reluctant to release their US dollars into the market for fear of further Rupiah depreciation. This makes a near-term strengthening of the Rupiah unlikely.