The Indonesian rupiah has been under heavy pressure over the past month amid US dollar strength ahead of the March Federal Reserve policy meeting where market participants expect to see another interest rate hike. The rupiah weakened 2.92 percent from IDR 13,402 per US dollar on 1 February 2018 to IDR 13,793 on 1 March 2018. Not only the rupiah but basically currencies have been sliding against the US dollar that touched a six-week high earlier in the week.
However, the latest news from the United States gives rise to expectation of a weaker US dollar next week. US President Donald Trump announced on Thursday (01/03) that he will impose steep tariffs on imports of steel and aluminum, hence rattling markets as the prospect of a global trade war appeared imminent. Trump's latest protectionist move involves a 25 percent tariff on steel and a 10 percent tariff on aluminum that is imported into the United States. Although the tariffs apply to all countries, China is hit hardest as the world's second-largest economy is the globe's biggest producer and exporter of steel.
As a consequence of the US tariffs stock markets fell on Friday (02/03), worldwide. Indonesian stocks were actually among the least affected as the benchmark Jakarta Composite Index only fell 0.35 percent to 6,582.31 points on the last trading day of the week.
Another reason why the Indonesian rupiah is not expected to weaken further in the week ahead is because the country's central bank (Bank Indonesia) is set to intervene further in the market to stabilize the rupiah. It is assumed that Bank Indonesia is comfortable with a (stable) rupiah in the range of IDR 13,300 - 13,500 per US dollar as this would be an attractive rate for exports.
However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.34 percent to IDR 13,746 per US dollar on Friday (02/03).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia