Indonesian Rupiah struggles amid foreign-exchange demand, portfolio outflows
- USD/IDR rises as importers' FX demand and domestic portfolio outflows weaken the Indonesian Rupiah.
- CME FedWatch shows a 65.9% chance of an October rate hike, up from 57.6% last week and 9.4% last month.
- US Dollar advances amid growing market expectations for an October Federal Reserve rate hike.
USD/IDR recovers its recent losses from the previous trading day, trading around 17,980 during the Asian hours on Monday. The pair gains ground as the Indonesian Rupiah (IDR) faces selling pressure, driven by robust foreign-exchange demand among importers and ongoing portfolio outflows from domestic assets, according to a central bank official.
Meanwhile, traders remain cautious ahead of critical economic releases scheduled for later this week, including Indonesia’s August trade data, September inflation figures, and manufacturing activity metrics.
The USD/IDR cross appreciates as the US Dollar (USD) receives support from hawkish signals from Federal Reserve (Fed) officials. Traders are turning their focus toward key economic indicators this week, including key US employment data and the Fed’s preferred inflation gauge.
Last week, Cleveland Fed President Beth Hammack warned against allowing the public to accept elevated prices as the norm. Echoing this sentiment, Philadelphia Fed President Anna Paulson noted that modest further tightening may be warranted. As a result, CME FedWatch Tool suggests that money markets are now pricing in a 65.9% chance of a benchmark rate hike at the October Fed meeting, up from 57.6% a week ago and just 9.4% a month ago.
Traders are closely tracking geopolitical developments in the Middle East. US President Donald Trump recently rejected Iran’s proposal to reopen the Strait of Hormuz, stating that Tehran had overplayed its hand, though he noted negotiations are expected to resume this week. Furthermore, President Trump expressed confidence that the conflict with Iran would conclude soon, while keeping open the possibility of additional military strikes before the midterm elections.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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