Indonesian Rupiah weakens amid stronger US Dollar, higher oil prices
Indonesian rupiah weakened as rising oil prices raised inflation fears and threatened the net oil importer's fiscal position.
Indonesian currency, the rupiah, is experiencing a decline due to increasing oil prices and rising inflation fears, which put pressure on the nation's fiscal position. The US Dollar (USD) gained strength, aided by anticipation of an interest rate hike from the Federal Reserve this week. Energy costs have heightened inflation concerns, prompting the Federal Reserve to tighten monetary policy.
This led to a surge in money markets, with a 92% chance of a rate hike being reported, a significant increase from 60% just a week ago according to the CME FedWatch tool.
Strategists at Scotiabank noted that the USD was entering the FOMC week "on a firm note," as markets reacted to shifts in expectations surrounding the policy decision on Wednesday following last week's US inflation data. However, the latest Bloomberg survey indicated only a narrow majority favored a hold, revealing the fine balance between market and survey-based expectations ahead of the meeting.
August's US Consumer Price Index (CPI) showed an increase, with core inflation hitting its highest level in four months. US 10-year Treasury yields also climbed near 5% due to broader inflation and fiscal concerns.
The Indonesian Rupiah (IDR) faced additional challenges from rising oil prices, threatening to exacerbate domestic inflation and strain the fiscal balance of the net oil-importing nation. Inflation fears grew after August's headline inflation accelerated to 3.19%, undermining government measures to address El Niño-driven food price volatility.
On the technical chart, USD/IDR is currently trading at 17,730, holding steady between the short-term nine-period Exponential Moving Average (EMA) and the medium-term 50-period EMA. This consolidation suggests no clear trend, with the 14-day Relative Strength Index (RSI) at 47 remaining below the midline, indicating subdued upside momentum despite easing selling pressure.
Resistance levels are observed near the 50-period EMA at 17,797, and a break above this barrier would signal a stronger recovery phase. Conversely, immediate support is noted at the nine-period EMA around 17,685; a drop beneath this level would expose recent lows and shift the bias back toward the bears.
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