The Indonesian rupiah began trading ahead of the weekend on a weaker note against the U.S. dollar on Thursday, July 30, following the U.S. Federal Reserve's decision to keep interest rates unchanged.

According to Bloomberg, the rupiah opened at IDR 18,075 per USD 1, down slightly by 0.02%, or 3 points. As of 9:10 a.m., Katadata reported that the rupiah had reversed course, strengthening to IDR 18,070 per USD 1, up 0.02%, or 3 points.

In the previous trading session, the rupiah closed modestly higher by 10 points after earlier weakening by as much as 25 points. The currency closed at IDR 18,073 per USD 1, compared with the previous close of IDR 17,083 per USD 1.

The rupiah is expected to strengthen against the U.S. dollar in today's trading as the greenback weakens following the outcome of the Federal Open Market Committee (FOMC) meeting, which markets viewed as less hawkish than expected.

The U.S. Federal Reserve (Fed) announced on Wednesday, July 29 (local time), that it would maintain its benchmark interest rate within the 3.5% to 3.75% range.

Lukman Leong, an analyst at Doo Financial, said the correction in the U.S. dollar has created room for emerging market currencies, including the rupiah, to appreciate.

"The rupiah has the potential to strengthen against the U.S. dollar, which has corrected significantly after the FOMC meeting was perceived as less hawkish than expected," Lukman told Katadata.co.id on Thursday, July 30.

According to Lukman, market participants believe the FOMC meeting did not signal a more aggressive tightening of monetary policy, putting pressure on the U.S. dollar's gains. This has provided positive sentiment for the rupiah's performance in today's trading.

However, Lukman expects the rupiah's appreciation to remain limited.

Domestically, market sentiment is still considered weak following the resignation of Bank Indonesia Governor Perry Warjiyo, which has left uncertainty surrounding the leadership transition at the central bank.

In addition, the escalating conflict in the Middle East remains a key risk, as it could drive global crude oil prices higher and increase demand for safe-haven assets, including the U.S. dollar.

"Weak domestic conditions and escalating tensions in the Middle East could limit the rupiah's gains," Lukman said.

He expects the rupiah to trade within a range of IDR 18,000 to IDR 18,100 per USD 1 during today's session.

This article is published in partnership with Katadata 

Original article here