Indonesian Rupiah strengthens as US Dollar weakens on easing Fed rate hike bets
USD/IDR has pared its recent gains from the previous day, trading around 17,910 during the Asian hours on Friday.
The Indonesian Rupiah strengthened as the US Dollar weakened due to easing expectations of Federal Reserve rate hikes. The USD/IDR pair traded around 17,910 during Asian hours on Friday, reflecting the decline in the US Dollar on reduced chances of a rate increase from the Federal Reserve. Traders were pricing in nearly a 28% probability of an October rate hike, according to the CME FedWatch Tool.
However, the Greenback might regain strength due to ongoing inflation issues caused by high energy costs and anticipation of a December rate hike. Benchmark US Treasury yields, at 5.25% for the 10-year and 5.62% for the 30-year, have been fluctuating after falling from multi-decade peaks due to political and fiscal instability in France driving demand for safe-haven assets.
Yet, US Treasury yields remain high, backed by predictions of continued Federal Reserve tightening, a strong US economy, and worries over America's long-term fiscal and debt issues. Market participants remain watchful for economic indicators to discern the Federal Reserve's policy direction, with upcoming Nonfarm Payrolls data being of particular interest.
Economists forecast an addition of 90,000 jobs, a significant slowdown from the previous month's 162,000, while the Unemployment Rate is projected to stay at 4.1%. Meanwhile, Indonesia's Central Bank Governor Destry Damayanti stated that the rupiah's pressure was a result of global conditions, changes in capital flows, and weaknesses in external-sector fundamentals.
September inflation in Indonesia hit a three-month high of 3.28%, primarily due to persistent food-price increases linked to El Niño effects. Analysts at ING’s Asia research team anticipate Indonesia's headline price pressures to rise in the coming months, projecting that "Indonesia's CPI inflation will accelerate to 3.3% YoY as El Niño drives further food price hikes."
They note that "rising rice prices will remain a key driver," but warn that "spillovers from higher food costs could also contribute to core inflation," indicating a broader increase in inflationary pressures.
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