1 April 2020 (closed)
USD/IDR (16,413) +46.00 +0.28%
EUR/IDR (18,073) +28.55 +0.16%
Jakarta Composite Index (4,466.04) -72.89 -1.61%
The US dollar is advancing on Thursday (28/09) amid strong US dollar demand on the back of US President Donald Trump's tax reform program announcement and looming further monetary tightening by the Federal Reserve before the year-end. Rising US treasury yields naturally cause US dollar strength, hence leading to weakening emerging market currencies, with especially the Indonesian rupiah being affected significantly today.
Around 10:25 am local Jakarta time on Thursday (28/09) Indonesia's rupiah had depreciated more than 1 percent to IDR 13,584 per US dollar, the currency's weakest level since early December 2016. A sharp rebound then occurred to IDR 13,535 around 10:40 am (which could be caused by Bank Indonesia intervention). What explains this weak rupiah performance?
Trump reiterated that his tax reform plans are "revolutionary" (although markets should know by now that this president tends to use big words, while actual delivery is limited). Trump's Republican Party rolled out a tax reform program on Wednesday (27/09) that proposes to cut taxes significantly for the country's middle class, while the US corporate income tax rate is suggested to fall to 20 percent (from 35 percent currently). Trump further emphasized that tax cuts are needed for the USA to thrive, grow and prosper. It would be the biggest US tax reform in three decades (since Ronald Reagan's administration).
Meanwhile, the Federal Reserve is set to shrink its huge balance sheet next month, while there are growing expectations that the US central bank will opt for another interest rate hike in December 2017. On Tuesday (26/09) Fed Chair Janet Yellen warned that it would be "imprudent" to keep policy on hold until US inflation heads back to 2 percent. She further stated that the Fed "should also be wary of moving too gradually" on rates.
Other factors are continued concern about USA-North Korea turmoil and the weakish Euro after the German election showed that Chancellor Angela Merkel will need to form a new government (her fourth term) with a coalition of junior parties.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.60 percent to IDR 13,464 per US dollar on Thursday (28/09).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia