Jakarta, CNBC Indonesia – The rupiah posted a sharp strengthening against the United States (US) dollar on Thursday (14/10), until it touched Rp 14,000/US$ and was at the strongest level in the last 8 months. The slumping US dollar made the rupiah able to freely strengthen.
According to Refinitiv data, the rupiah opened trading by strengthening 0.25% to Rp 14,180/US$. The strengthening of the rupiah was trimmed to Rp. 14,190/US$, but after that it strengthened 0.46% to Rp. 14,150/U$.
Entering the middle of the day, the strengthening of the rupiah was trimmed again. At 12:00 WIB, the rupiah was at Rp 14,165/US$.
After noon, the rupiah became stronger, jumping 0.91% to Rp 14,085/US $. The strongest level since February 25.
At the close of trading, the rupiah’s position was trimmed to Rp. 14,115/US$, strengthening 0.7% in the spot market.
The US dollar fell again today. As of this afternoon, the US dollar index weakened 0.2% after falling 0.46% yesterday. Rupiah was smooth in the green zone, without ever tasting the red zone.
The drop in the US dollar occurred despite inflation being at its highest level in the last 13 years.
Graph: United States Inflation (CPI)
The US government yesterday reported inflation as seen from consumer price index (CPI) in September reportedly grew 0.4% from the previous month, higher than the yield polling Reuters against economists by 0.3%. Meanwhile, compared to September 2020, inflation rose 5.4%, higher than August’s 5.3% growth. year-on-year (YoY).
Meanwhile, core inflation, which excludes the food and energy sectors, grew 0.2% month-on-month (MoM), and 4% YoY.
Inflation is one of the main references for the US central bank (The Fed) in implementing monetary policy, for now is the time for tapering or reducing the value of the asset purchase program (quantitative easing/QE) and an increase in interest rates.
The Fed actually looks at inflation more based on personal consumption expenditure (PCE) which will be released later this month. However, the CPI that is still rising can give an idea if the PCE will also continue to rise again.
Moreover, inflation based on PCE is currently at its highest level in the last 30 years.
High inflation in the US is now said to last for quite a long time, no longer temporary as the Fed said. So market participants expect the Fed to raise interest rates in September next year, faster than the previous estimate in December 2022.
“The market now sees high inflation as lasting longer rather than temporary, and this is likely to force the Fed to raise rates more quickly as market participants expect. Previously, the market saw interest rates going up in December 2022, but is now advancing in September next year. ,” said Edward Moya, market analyst at Oanda CNBC International.
Based on data from the CME Group’s FedWatch toolkit, market participants currently see a 42.3% probability that the Fed will raise interest rates by 25 basis points to 0.25% – 0.5%.
Photo: CME Group
This probability is the highest compared to others, for example the probability of an interest rate of 0 – 0.25% is 34.2%. The Fed is currently setting interest rates at 0 – 0.25%, meaning FedWatch shows that the market sees a greater chance of raising rates in September than holding them.
A faster rate hike should have made the US dollar strong, but now it’s sinking. The reason is that the Fed was forced to raise interest rates in order to dampen rising inflation, while Uncle Sam’s economy may not yet reach its maximum labor market, especially after the release of disappointing employment data last week.
As a result, there is a risk that the US economy will slow down due to faster interest rate hikes, and the US dollar will slump.
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