Indonesian Rupiah moves little as US Dollar (USD) remains steady amid safe-haven demand
- USD/IDR may rise as the US Dollar could advance further amid escalating global geopolitical tensions.
- Higher US Treasury yields and inflation pressures continue to drive strong Greenback momentum.
- Revenue growth through August strengthened Indonesia's fiscal position, potentially supporting the IDR.
USD/IDR remains steady after registering minor gains in the previous day, trading around 17,930 during the European hours on Tuesday. However, the pair may further appreciate as the US Dollar (USD) gains momentum, largely driven by a surge in safe-haven demand amidst escalating geopolitical conflicts.
Xinhua News Agency reported that Yemen's Houthi group launched coordinated missile and drone strikes against Saudi Arabian military bases, an oil facility, and major airports. Houthi spokesman Yahya Saree confirmed a hit on King Khalid International Airport in Riyadh that disrupted local air traffic, prompting investors to flock to traditional safe-haven assets like the Greenback.
Additionally, the Greenback remains stronger due to a significant rally in US Treasury yields, which have reached fresh 24-year highs. This surge in yields stems from a persistent global bond selloff fueled by expanding fiscal deficits and persistent inflationary pressures. The latest ISM data further reinforced these inflation concerns, showing that input costs in the US services sector recently increased at their fastest pace in more than four years.
Dollar support persists as Euro weakness and rising yields offset equity strength
ING’s Francesco Pesole highlights that “the dollar has continued to find support at the start of this week,” with the move still largely driven by “the euro’s idiosyncratic weakness” and “global bond yields that keep pushing higher.” He notes that “strong equity performance likely capped USD gains and allowed some high-beta currencies to outperform,” yet stresses that “the domestic backdrop remains constructive for the greenback,” keeping the Dollar underpinned even as risk assets rally.
The USD/IDR pair resisted appreciation as the Indonesian Rupiah (IDR) could receive support due to domestic fiscal conditions through August, supported by revenue growth, even as tax-restitution delays reportedly persisted. Traders await key domestic economic releases due later this week, including September foreign exchange reserves and August retail sales figures.
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.