Key Moments
- USD/IDR snaps a four-day decline and trades near 18,020 during Asian hours on Monday.
- Fuel shortages in Sumatra and higher crude prices intensify worries about Indonesia’s fiscal position, even as first-half 2026 budget execution stays broadly on track.
- Market pricing via the CME FedWatch Tool shows a 61.4% probability of a US rate hike in September, despite expectations for the Federal Reserve to keep rates unchanged at its upcoming meeting.
Rupiah Under Pressure as USD/IDR Rebounds
USD/IDR pauses its recent downtrend, with the pair trading around 18,020 in Asian trading on Monday. The move reflects renewed pressure on the Indonesian Rupiah (IDR) as higher crude oil prices weigh on the country’s outlook.
Reports of fuel shortages in Sumatra have heightened investor concerns about Indonesia’s fiscal strain. Despite these pressures, the article notes that budget execution for the first half of 2026 has remained broadly in line with plans.
Investment Flows Highlight Underlying Resilience
Against this backdrop, investment activity in the region has shown signs of improvement. Foreign direct investment inflows posted their strongest increase since late 2024 during the second quarter, signaling Indonesia’s continued ability to attract long-term capital in the face of global uncertainty.
Federal Reserve Expectations and USD Outlook
Upside potential for USD/IDR may be limited by broader US Dollar (USD) dynamics. The USD continues to soften as market participants broadly expect the Federal Reserve to leave interest rates unchanged at its upcoming policy meeting.
At the same time, pricing derived from the CME FedWatch Tool now indicates a 61.4% probability of a rate hike in September, suggesting that expectations for policy tightening later in the year are still in play.
| Indicator | Latest Indication |
|---|---|
| USD/IDR level during Asian hours on Monday | 18,020 |
| Recent USD/IDR trend | Four-day losing streak ended |
| Probability of Fed rate hike in September (CME FedWatch Tool) | 61.4% |
Geopolitical Tensions and Risk Aversion
The US Dollar may find support if risk aversion deepens amid heightened geopolitical tensions between the United States (US) and Iran. The article states that the US has conducted its ninth consecutive night of strikes against Iranian targets.
In response, Iranian officials have declared that the ceasefire between the two countries has effectively collapsed, raising the risk of more severe disruptions to vital energy routes through the region’s narrow waterways.
Understanding Risk Sentiment in Markets
What do the terms “risk-on” and “risk-off” mean when referring to sentiment in financial markets?
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.
What are the key assets to track to understand risk sentiment dynamics?
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.
Which currencies strengthen when sentiment is “risk-on”?
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.
Which currencies strengthen when sentiment is “risk-off”?
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.
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