Indonesian Rupiah Gains as US Dollar Weakens Ahead of Fed Rate Decision
The Indonesian Rupiah (IDR) has strengthened as the US Dollar (USD) weakened ahead of the Federal Reserve's interest rate decision. The USD/IDR pair halted its four-day winning streak, trading around 17,740 during Asian hours on Wednesday.
The decline in the Greenback comes despite hotter-than-expected US inflation data released last week, which solidified expectations of further monetary tightening by the Fed. Markets anticipate a 25 basis point rate hike at the upcoming policy meeting, lifting the benchmark overnight rate to 3.75% to 4.00%. The CME FedWatch tool indicates that traders are pricing in nearly a 92.4% probability of this quarter-point increase.
However, the IDR may face mounting pressure from domestic and international headwinds. Indonesia's recovery is slowed by persistent weakness in August factory activity, fragile consumer sentiment, and decelerating retail sales growth. External risks include surging global crude oil prices driven by Middle East tensions, elevated international bond yields, and cautious foreign investors pulling back from Indonesian assets.
The reshuffle in Indonesia's finance ministry has also raised questions over the stability of fiscal policymaking. President Prabowo Subianto abruptly dismissed Finance Minister Purbaya Yudhi Sadewa yesterday after around one year in office. Deputy Finance Minister Suahasil Nazara has been elevated to the top job, making him Indonesia's third finance minister in less than two years.