Indonesian Rupiah declines as US Dollar remains stronger amid hawkish Fed tone
- USD/IDR extends its gains as markets price in a 56.5% chance of another rate increase in October.
- Fed Chair Kevin Warsh stresses that persistent inflation remains too high, signaling further tightening.
- Traders position themselves ahead of Bank Indonesia's two-day policy meeting starting Tuesday.
USD/IDR extends its winning streak for the eighth successive day, trading around 17,850 during the Asian hours on Monday. The pair remains stronger as the US Dollar (USD) gains support amid hawkish sentiment surrounding the Federal Reserve (Fed) policy outlook. Last week, the US Federal Reserve delivered a 25-basis-point rate hike, its first hike in three years, as officials sought to curb inflation and flagged more hikes in the coming months.
Markets are now pricing in nearly a 56.5% chance of another US rate hike when the Fed meets next in October, compared with nearly 42.5% a week ago, according to the CME FedWatch tool.
Fed Chair Kevin Warsh said that "the plain fact is that inflation is too high and has been for too long." "This summer's inflation readings do not tell me that underlying trends have meaningfully improved," he added.
Traders are closely positioning themselves ahead of Bank Indonesia’s (BI) upcoming policy decision this week. The central bank is set to begin its two-day meeting on Tuesday. This follows its previous decision to leave key interest rates unchanged at 5.75% for a second consecutive month in August, taking a pause after implementing 100 basis points of total hikes since May.
Technical Analysis:
In the daily chart, USD/IDR trades at 17,850. The pair is consolidating after its recent rebound, with price hovering just under the short-term nine-day Exponential Moving Average (EMA) and above the medium-term 50-day EMA, leaving the broader bias neutral with a slight topside tilt. The 14-day Relative Strength Index (RSI) at 57.4559 sits in positive territory but shy of overbought conditions, suggesting improving bullish momentum without signaling exhaustion.
On the topside, a daily close above the nine-day EMA around 17,765 would reinforce buyers’ control and open the way toward further recovery levels, while a sustained break above the 50-day EMA near 17,799 would hint at a more durable bullish phase. On the downside, any pullback that fails to hold above the 50-day EMA would expose the recent reaction lows, with weakening momentum likely if RSI slips back toward the mid-50s area.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Kashkari flags stubborn inflation but leans on resilient growth narrative
Kashkari’s latest remarks score 6.2 on the FXS Speechtracker, essentially in line with the 6.3 historical average and signaling a steady, moderately hawkish tone. Emphasis that inflation “remains too high” and is not just an oil story, alongside references to robust growth, a resilient American economy, improving productivity and a still-strong labor market, underscores a bias toward keeping policy restrictive for longer even as Kashkari hopes real-economy dynamics help bring inflation down. The reminder that the bond market is the Treasury’s responsibility also distances the Fed from recent yield volatility, keeping the focus on the inflation-growth mix.
The FXS Fed Sentiment Index slipped by 1.47 points to 150.61, indicating a modest softening in perceived hawkishness relative to the prior reading. However, with the index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory despite the pullback, consistent with a Kashkari speech that is only marginally less hawkish than the established baseline on the FXS Speechtracker.
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.