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JAKARTA (TheInsiderStories) – The Rupiah, our Indonesian currency, continued to manifest its weakness on Thursday (28/9), sliding to a 10-month low against US dollar (US$). Rupiah was 0.52 percent down in value, at Rp13,515 per U.S dollar, after having slipped to its lowest level of Rp13,594 per US$ on Thursday (28/9).

This figure exceeds the previous deepest weakness ever recorded on Dec. 2, 2016. At that time the rupiah touched the level of Rp13,512 per US$.

Based on Bank Indonesia’s data, Jakarta Interbank Spot Dollar Rate (JISDOR), the Rupiah median currency open at Rp13,464, or down 0.60 percent. Rupiah had touched its highest level at Rp13,154 per USD on Sept 11, continuing to weaken since then. In the past week, Rupiah lost 1.46 percent against the US$.

Dody Budy Waluyo, BI Executive Director of Economic and Monetary Policy suggested the weak Rupiah was due to “hawkish” statements of Janet Yellen, President of the Fed, as well as Trump tax reform policy.

“BI will continue to sustain the Rupiah according to its fundamental value,” he vowed.

Eric Sugandi, Chief Economist at SIGC said, the weakening of Rupiah cannot be separated from the rise in US treasury yield. There are two major events behind the strong US dollar. First, the market expectation of the rise of a Fed Fund Rate (FFR) at the end of the year. Second, the Trump administration plan to cut the corporate tax rate, which received strong support from the Republican Party.

The pressure on the Rupiah also emerged from the decision of Bank Indonesia to cut its Bank Indonesia 7-Day Reverse Repo Rate this month to 4.25 percent. Therefore, a narrowed interest-rate margin encouraged heavier capital outflow.

However, Eric suspects the stronger US$ will not endure, depending on market issues. Indonesian inflation data will be released on Oct 1. If it looks good, pressure on the Rupiah will decline.

“I expect the central bank will intervene to keep the Rupiah stable against the USD. It may fluctuate at a level of Rp13,400-13,500. But it will hold firm at a level of Rp13,300-13,400,” he added.

Winang Budoyo, Chief economist at PT Bank Tabungan Negara Tbk, added the high market expectation of the U.S gross domestic product (GDP) kept the US currency strong the past week. If the US economic recovery results beat market expectation, Fed policy will become a huge factor influencing decisions of Bank Indonesia, our central bank.

“We see the BI 7-Day Repo Rate currently at its lowest level. We estimate the Rupiah will be mixed at a level of Rp13,500 against the US$,” he said.

Reny Eka Putri, Financial Markets Analyst at PT Bank Mandiri Tbk, also sees the US market reacted positively after the Fed chairman’s statement ensuring that the country’s benchmark interest rate could still rise this year. Consequently, the US dollar exchange rate strengthened against most currencies of other countries.

In addition, the market also put great expectations on Donald Trump’s tax reform policy which is believed to be coming soon. Meanwhile, Lukman Leong, Analyst of Valbury Asia Futures, considers the policy of BI rate cuts rate is considered too fast.

According to him, the market is expecting that the new 7-day repo rate decline actually occurred in the final quarter of this year. He stated, that economic development in the U.S is still a determining factor of the rupiah movement in the trade in at least two or three days ahead.

Moreover, word got out that the government of Uncle Sam’s country will announce the development of its GDP tonight. On the other hand, domestic sentiment is expected to affect the rupiah next week when the inflation data update is announced by the government.

Lukman also predicts the rupiah exchange rate against the US$ will still continue the trend of weakening on Friday (29/9) is in the range of Rp 13,500-13,570. While Reny predicted the rupiah will weaken again with support Rp 13.470 and resistance Rp 13,470 per US$.

Today, Asian stock markets moved mixed in recent trading this week. The prospect of United States tax reform (US) and the release of Japanese economic data are the drivers of the stock market today.

The Nikkei index fell 0.35% to 20.292. The Hang Seng Index rose 0.30% to 27,510. ASX 200 fell 0.14% to 5.662.

The market is still calculating the effects of U.S tax reforms. Because the implementation of this tax takes a long time. The previous day, U.S stocks closed higher with the Dow Jones Industrial Average rising 0.18 percent to 22,381.20.

Meanwhile, from Japan, economic data in the form of core consumer prices rose 0.7 percent in August 2017 when compared with August last year. This is an increase in eight consecutive months. Retail sales rose 1.7 percent last month compared to August 2016.

But, industrial production is actually higher than predictions. Japan’s industrial production in August rose 2.1 percent over the previous month.

Writing by Rahmat Fiansyah, Email: rahmat.fiansyah@theinsiderstories.com