Indonesian Rupiah weakens amid stronger US Dollar, higher oil prices
- USD/IDR gains as expectations for an upcoming US Federal Reserve interest rate hike boosted the US Dollar.
- CME FedWatch Tool indicates the odds for a Fed rate hike surged above 92%, driven by August's CPI inflation data.
- US 10-year Treasury yields approached 5%, placing heavy pressure on non-yielding metals like Silver.
Indonesian rupiah weakened as rising oil prices raised inflation fears and threatened the net oil importer's fiscal position.
USD/IDR extends its gains for the fourth consecutive day, trading around 17,730 during Asian hours on Tuesday. The pair rises as the US Dollar (USD) receives support from rising expectations for a US Federal Reserve interest rate hike this week.
Rising energy costs have intensified inflation concerns, placing greater pressure on the Fed to tighten monetary policy. As a result, money markets surged on Monday to reflect over a 92% chance of a rate hike, a sharp increase from roughly 60% just a week prior, based on data from the CME FedWatch tool.
USD firms as FOMC expectations tilt toward further tightening
Strategists at Scotiabank report that the USD is entering FOMC week “on a firm note,” as markets respond to the “shift in expectations around the policy decision on Wednesday following last week’s US inflation data.” They highlight that swaps now “reflect 21bps (or 85%) of tightening risk for Wednesday,” while the latest Bloomberg survey “shows only a very narrow majority of respondents favouring a hold,” underscoring how finely balanced market and survey-based expectations have become ahead of the meeting.
Friday's economic data revealed that the US Consumer Price Index (CPI) rose in August, with core inflation recording its largest gain in four months. Moreover, the US 10-year Treasury yield surged toward 5% due to broader inflation and fiscal worries.
The Indonesian Rupiah (IDR) also faces challenges amid rising oil prices, threatening to inflame domestic inflation and strain the fiscal balance of the net oil-importing nation. These inflationary fears mounted after August headline inflation accelerated to 3.19%, undercutting government measures aimed at curbing El Niño-driven food price volatility.
Technical Analysis:
In the daily chart, USD/IDR trades at 17,730, holding in a neutral near-term stance as it sits above the short-term nine-period Exponential Moving Average (EMA) but remains capped below the medium-term 50-period EMA. This push-pull configuration suggests consolidation rather than a clear trend, while the 14-day Relative Strength Index (RSI) at about 47 stays below the midline, hinting that upside momentum is still subdued even as selling pressure has eased.
On the topside, initial resistance aligns with the 50-period EMA near 17,797, and a daily close above this barrier would be needed to reopen a stronger recovery phase. On the downside, immediate support is seen at the nine-period EMA around 17,685; a break beneath this buffer would expose the recent lows and tilt the bias back toward the bears.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.