After the release of the Federal Reserve's April policy minutes, investors and analysts have become increasingly aware that another interest rate hike may come earlier than initially expected. Besides the 'hawkish' minutes, several Federal Reserve officials have made statements in support of a US rate hike. As such, investors are now waiting for the speech of Fed Chair Janet Yellen, scheduled for Friday (27/05), in order to search for new clues about the short-term direction of the Federal Reserve's monetary policy.

Based on analyst surveys, there is a 32 percent chance of a June rate hike (up from four percent one week ago). This still implies that - by far - the majority of analysts does not expect a rate hike next month. A hike seems unlikely given there will not be enough US macroeconomic data to collect before the Federal Reserve's next policy meeting (scheduled for 14-15 June), while the Brexit vote result on 23 June 2016 is also a potential threat that could rock markets worldwide. Earlier this week the UK Treasury said a year-long recession could emerge in Great Britain if it leaves the European Union. Considering the above-mentioned uncertainties, it could make Fed officials decide to wait at least one more month before tightening US monetary policy further.

Similar to the situation last year, markets are likely to react positively after a US interest rate hike. However, before the official decision has been made, markets are expected to be plagued by high volatility amid heightening speculation about the monetary move, while emerging markets will see severe capital outflows.

News agency Reuters added that rupiah weakness today occurred also because several large European banks sold Indonesia's currency, a move that is allegedly linked to bond outflows. So far this month foreign investors have been net sellers of Indonesian bonds. Today, Indonesia sold IDR 9.99 trillion (approx. USD $730 million) of bonds, below the indicative target of IDR 12 trillion. Total incoming bids were recorded at IDR 14.69 trillion, higher than the IDR 13.43 trillion received in the preceding bond auction (10 May 2016). Today, the Indonesian government conducts another bond auction. Indonesia's Finance Ministry targets to raise IDR 12 trillion (approx. USD $880 million).

However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) remained unchanged at IDR 13,606 per US dollar on Tuesday (24/05).

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Meanwhile, the world's oil prices declined on Tuesday, with West Texas Intermediate (WTI) falling 0.71 percent to USD $47.74 per barrel, while Brent crude declined 0.95 percent to USD $47.89 per barrel. Malaysia's oil-linked ringgit depreciated to a 10-week low against the US dollar because weakness in crude oil prices spark concern about the nation's finances.

Meanwhile, Indonesia's benchmark Jakarta Composite Index (IHSG) fell 0.69 percent to 4,710.79 points on Tuesday.