The rupiah weakened only slightly against the US dollar in early trading Tuesday. The rupiah had strengthened for a while even though the US dollar was at its strongest after US President Joe Biden chose Jerome Powell as chairman of the US central bank (The Fed).
Launching Refintiv data, the rupiah opened trading with a slight weakening of 0.04% to Rp 14,250/US$. The depreciation then expanded to 0.14% at Rp 14,265/US$, before the rupiah strengthened 0.18%.
But the strengthening was only momentary, at 9:10 WIB the rupiah was back at Rp 14,265/US$. Biden officially nominated Powell to continue his leadership at the Fed Monday local time.
Previously, there was a discourse that Powell would be replaced because there were some elite Democrats who did not agree with Powell. The discourse strengthened after Biden interviewed Powell and another candidate Lael Brainard.
Brainard currently serves on the Fed's Board of Governors and is considered more dovish than Powell. If he is chosen, then the market sees low-interest rates will be held for longer.
Powell's Nomination Results in The Movement of The Rupiah
Powell's nomination for a second term indicates the outlook for monetary policy will not be as dovish if Brainard is chosen as Fed chair, said Joe Manimbo, an analyst at Western Union Business Solutions in Washington, as reported by CNBC International.
With Powell now continuing his second term of leadership, the projected interest rate hike in semester II-2022 is still on track, even sooner.
The market responded to Powell's election by releasing US bonds (Treasury). As a result, the 10-year Treasury yield was 8.43 basis points to 1.6322%, which triggered a 0.5% increase in the US dollar index to 96.5, the highest level since July 2020.
The room for rate hikes is getting bigger after Powell remains Fed chair and that's positive for the US dollar. The Fed now even can raise interest rates faster than the previous market expectations in the second semester of 2021.
This opportunity emerged after last week, the Fed's Board of Governors, Christopher Waller called for the Fed to double the tapering or reduce the value of the QE asset purchase program so that it could end in April next year and could raise interest rates in the second quarter of 2022.
In addition to Waller, the vice-chairman of the Fed, Richard Clarida also made the same statement. By looking at the data obtained from now on until the monetary policy meeting in December, and it may be the right time to accelerate the tapering rate.
Several Factors That Make the Rupiah Weaker
The strengthening of speculation about an increase in interest rates in the United States (US) has made the rupiah never strengthen this week. Last Thursday, the rupiah weakened again slightly by 0.07% against the US dollar to Rp. 14,265/US$.
The release of good US economic data last Wednesday, where consumer spending increased, claims for weekly jobless benefits which were at their lowest level in more than 50 years suggest the US economy continues to recover.
In addition, core inflation based on PCE rose again sharply to 4.1%, the highest since January 1991. Then there was the release of the minutes of the Fed's monetary policy meeting showing that many board members are ready to raise interest rates if inflation continues to be high.
All of that became a "backup" for the US dollar to strengthen. After the release of the series of data and minutes, market participants now see that there is an 80% probability that the Fed will raise interest rates in June 2022, faster than the previous semester II-2022.
Technically, there are no levels to watch out for considering that the rupiah has weakened again slightly yesterday. The rupiah symbolized by USD/IDR is still under pressure because it is above the 50-day moving average in the range of Rp. 14,220/US$.
