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Why the US Dollar Strengthens While the Rupiah Weakens: A Clear Explanation

Discover why the Indonesian Rupiah often weakens against the US Dollar. Learn the key economic factors, global influences, and market behaviors that shape currency movements.

Introduction

On March 19, 2020, the Indonesian Rupiah sharply weakened, touching IDR 16,000 per US Dollar. This was only the second time in history after the 1998 economic crisis. What caused this drastic movement, and why does the Dollar often gain strength when the Rupiah falls? Let’s break it down in simple terms.

How Currency Exchange Works

Currencies are traded globally based on demand and supply. When many people want to exchange Rupiah into US Dollars, demand for Dollars rises, pushing its value up. Conversely, if more investors hold Dollars and exchange them for Rupiah, the Rupiah strengthens.

“The Dollar strengthens when people rush to convert their money into a safe and trusted currency.”

Key Factors Driving Dollar Strength

1. Investment Prospects

Foreign investors place their money in countries with political stability, economic growth, and attractive interest rates. High returns make a currency more appealing. When Indonesia shows strong prospects, foreign money flows in, strengthening the Rupiah. But uncertainty can trigger capital flight, weakening it.

2. Trade Balance (Exports vs Imports)

When Indonesia imports more than it exports, it must pay in Dollars, raising Dollar demand. On the other hand, when exports increase, foreign buyers pay in Dollars, which are then converted into Rupiah — strengthening the local currency.

3. Global Consensus & Safe Haven Status

The US Dollar is considered a safe haven currency. During crises, investors worldwide prefer to hold Dollars because it is stable, widely accepted, and tied to global commodities like oil, gold, and coal.

Case Study: Rupiah’s Fall in March 2020

• COVID-19 outbreak: The global pandemic triggered economic uncertainty. Investors sought safety by holding US Dollars, driving up demand.
• Capital outflow: Foreign investors pulled out funds from Indonesian stocks and bonds, exchanging large amounts of Rupiah for Dollars.
• Result: Within a month, the Rupiah lost nearly 17% of its value.

Why the Dollar Keeps Winning

Even when the US is at the center of a financial crisis — like in 2008 — the Dollar often appreciates. This is because global trust in the US Dollar as the world’s reserve currency remains strong, making it the default choice during turbulence.

Lessons for Investors

• Always watch political stability and interest rates when analyzing currencies.
• A country’s trade balance has a direct impact on its currency strength.
• Global crises often push investors into the Dollar, weakening emerging market currencies like the Rupiah.

Conclusion

The Rupiah’s fluctuations are not random — they reflect investment sentiment, trade flows, and global trust. Understanding these forces helps investors and everyday people make sense of currency movements. As global uncertainty rises, keeping an eye on safe haven currencies like the US Dollar becomes even more important.

Have you ever experienced the impact of exchange rate changes in your daily life? Share your thoughts in the comments and let’s discuss!

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Finance

References

• Video: PENJELASAN: Kenapa Harga Dolar Naik & Rupiah Melemah?
• Channel: Ngomongin Uang
• Link: https://www.youtube.com/watch?v=u72ts1RA2oQ