Key Moments
- USD/IDR advanced for a second straight session, trading near 17,920 during Thursday’s Asian session.
- Bank Indonesia kept its benchmark rate unchanged at 5.75% after delivering a cumulative 100-basis-point hike in May and June.
- Market-implied odds of a 25-basis-point Federal Reserve rate increase in October climbed to 69.7%, up from 48.7% one week earlier.
Rupiah Under Pressure as USD/IDR Climbs
USD/IDR extended its advance for a second consecutive day, with the pair trading around 17,920 in Asian hours on Thursday. The Indonesian Rupiah came under renewed selling pressure as investors grew more anxious about Indonesia’s fiscal outlook in the context of rising oil prices, providing further support to the U.S. Dollar.
Bank Indonesia Holds Rates Steady Under New Governor
Bank Indonesia (BI) left its benchmark interest rate unchanged at 5.75% on Wednesday, in line with market expectations. This was the first policy decision under newly installed Governor Destry Damayanti and followed a total of 100 basis points of tightening implemented in three moves during May and June. Those earlier hikes were aimed at shoring up the Rupiah after it hit record lows against the U.S. Dollar.
| Policy Detail | Value / Description |
|---|---|
| Current BI benchmark rate | 5.75% |
| Total hikes in May-June | 100 basis points (3 moves) |
| Recent USD/IDR level (Asian hours, Thursday) | 17,920 |
U.S. Data and Fed Expectations Support Dollar Strength
The upside in USD/IDR has been reinforced by a stronger U.S. Dollar backdrop, underpinned by continued expectations of a hawkish Federal Reserve stance. The latest Flash U.S. S&P Global PMI data for September showed manufacturing activity expanding more robustly than anticipated, at 52.0. That print helped counter modest declines in the composite and services gauges, reinforcing the perception of resilient U.S. economic momentum.
In response, market pricing for a 25-basis-point Fed rate hike in October rose sharply to nearly 69.7%, compared with 48.7% the previous week. Traders are now turning their attention to the upcoming U.S. weekly Initial Jobless Claims figures, while commentary from several Fed officials continues to endorse recent rate increases and highlight ongoing inflation risks.
| U.S. Macro / Policy Indicator | Latest Figure / Status |
|---|---|
| Flash U.S. S&P Global Manufacturing PMI (September) | 52.0 |
| Implied probability of 25 bp Fed hike in October | 69.7% |
| Implied probability one week earlier | 48.7% |
Broad Dollar Rally Weighs on High-Beta FX
Strategists at Scotiabank note that “momentum remains with the USD,” with “broad gains against the major currencies this morning” pushing the Dollar Index to “its highest since late July.” They point out that “high beta FX is underperforming on the day,” with the NZD, MXN and ZAR positioned “at the foot of the overnight performance table alongside the KRW,” emphasizing the broad-based nature of the latest leg higher in the Dollar.
Understanding Risk Sentiment in Markets
The article also provides background on how shifts in risk appetite influence asset prices and currency performance, using the commonly referenced “risk-on” and “risk-off” framework.
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