Rupiah Advances as Dollar Softens Before Fed

Key Moments

USD/IDR falls toward 18,120 in Asian trading after two straight sessions of gains.
Markets see a 30.5% chance of an immediate Fed rate hike and a 76.6% chance of a September move.
Indonesian assets remain pressured after Bank Indonesia Governor Perry Warjiyo’s surprise resignation and weaker approval ratings for President Prabowo Subianto.

Fed Uncertainty Weighs on USD/IDR

USD/IDR is moving lower during Wednesday’s Asian session. The pair trades near 18,120 as the US Dollar (USD) loses momentum ahead of the Federal Reserve policy decision.

The Fed is widely expected to keep interest rates unchanged at this meeting. However, derivatives markets show a 30.5% chance of an immediate rate hike. This highlights rising uncertainty around the policy outlook. Meanwhile, traders see a 76.6% chance of a rate hike in September, suggesting that high borrowing costs could continue for longer.

Event/Metric	Current Market View
USD/IDR level (Asian hours, Wednesday)	Around 18,120
Probability of immediate Fed rate hike	30.5%
Probability of Fed rate hike in September	76.6%

Domestic Risks Limit Rupiah Strength

Despite the recent decline in USD/IDR, further Rupiah gains may remain limited. Domestic political and policy concerns continue to weigh on investor confidence.

The Rupiah faced pressure after Bank Indonesia (BI) Governor Perry Warjiyo unexpectedly resigned on Monday. The move raised concerns about the central bank’s independence. As a result, some investors adopted a more cautious view toward Indonesian assets.

Political developments have also added pressure. A recent survey from Saiful Mujani Research and Consulting (SMRC) showed President Prabowo Subianto’s approval rating fell to 51.1%. This marks a sharp decline from 81.2% in November and 66.4% in March.

Survey Date/Reference	Presidential Approval Rating
November of last year	81.2%
March	66.4%
This month (SMRC survey)	51.1%

Understanding Risk Sentiment in Financial Markets

Market sentiment plays an important role in currency movements. Investors often use the terms “risk-on” and “risk-off” to describe changes in their appetite for risk.

What “Risk-On” and “Risk-Off” Mean

A “risk-on” market appears when investors feel confident about future growth. During these periods, they usually buy assets with higher potential returns. By contrast, a “risk-off” market develops when investors become more cautious. Therefore, they often move toward safer assets with more stable returns.

Assets That Reflect Shifts in Risk Appetite

During risk-on periods, stock markets often rise. In addition, most commodities, excluding Gold, tend to gain as investors expect stronger economic growth. Commodity-linked currencies may also benefit because higher demand supports export revenues.

However, risk-off conditions usually create demand for safer assets. Government bonds often gain, while Gold attracts buyers. Safe-haven currencies such as the Japanese Yen, Swiss Franc, and US Dollar also tend to strengthen.

Currencies Favored in “Risk-On” Environments

The Australian Dollar (AUD), Canadian Dollar (CAD), and New Zealand Dollar (NZD) often perform well during risk-on markets. These currencies benefit from their countries’ links to commodity exports. Furthermore, stronger economic activity can increase demand for raw materials and support commodity prices.

Currencies Favored in “Risk-Off” Periods

The US Dollar (USD), Japanese Yen (JPY), and Swiss Franc (CHF) usually gain during risk-off periods. The US Dollar benefits from its reserve currency status, as investors often seek US government debt during uncertain times.

Meanwhile, the Japanese Yen receives support from demand for Japanese government bonds. Many domestic investors hold these assets, which can provide stability during market stress. Similarly, the Swiss Franc attracts buyers because Switzerland is viewed as a safe financial centre.