The Indonesian Rupiah strengthened against the US Dollar on Tuesday, February 4, 2025, closing at Rp16,351 per USD, appreciating 97 points from the previous day's closing rate of Rp16,448. The currency initially gained up to 105 points before correcting slightly ahead of the closing session.
The strengthening of the Rupiah was attributed to the weakening of the US Dollar Index, influenced by developments in US trade policy. The postponement of trade tariffs on Canada and Mexico has improved risk sentiment, contributing to the US Dollar's decline.
However, volatility remains a concern for the Rupiah, particularly with US President Donald Trump's tariff policies against China still in place. Despite plans for a meeting between Trump and President Xi Jinping, a 10 percent tariff on Chinese goods is scheduled to take effect this week.
The Federal Reserve's interest rate policy also remains a key factor that could hinder the strengthening of emerging market currencies, including the Rupiah. The US central bank has indicated caution in cutting interest rates, especially after last week's strong Personal Consumption Expenditures (PCE) price index inflation data. Fed officials have stated that persistently high inflation could slow down plans for monetary policy easing.
Domestically, the Rupiah's strengthening was also supported by positive economic performance. Indonesia's Manufacturing Purchasing Managers' Index (PMI) at the beginning of 2025 rose to 51.9 from 51.2 in December 2024. The increase in production and new orders, both from domestic and international markets, was the main driver of the sector's expansion.
Household consumption indicators also showed a positive trend. Bank Indonesia's Consumer Confidence Index (CCI) stood at an expansionary level of 127.7 in January, up from 125.9 in the previous month. Meanwhile, inflation declined to 0.76 percent year on year (YoY) compared to 1.57 percent in December 2024. Monthly, there was a deflation of 0.76 percent due to a government electricity tariff discount program, although the prices of some food commodities rose due to the rainy season.
The government has stated that it will continue to keep inflation under control through coordination between central and regional authorities, including the Central Inflation Control Team (TPIP) and the Regional Inflation Control Team (TPID).
For trading on Wednesday, February 5, 2025, analysts predict that the Rupiah will remain volatile but is likely to close stronger within the range of Rp16,300 - Rp16,360 per US dollar. External and internal sentiments remain mixed, so the Rupiah's movement will still be influenced by global dynamics and domestic economic policies.