USD/IDR has seen a slight uptick after experiencing minor losses, trading around 17,770 during Asian hours on Tuesday. This currency pair has managed to hold its position as the US Dollar (USD) strengthens, largely due to the hawkish sentiments surrounding the Federal Reserve (Fed).
Traders have significantly ramped up their expectations for a rate hike in September, prompted by comments from Fed officials suggesting that more actions are necessary if inflation fails to consistently hit the 2% target. According to the CME FedWatch Tool, there is now over a 66% chance for a rate hike in September, a noticeable increase from about 41% just last week. Investors are keeping a close eye on the busy economic calendar, looking for additional policy hints, with key US manufacturing and services data leading up to Friday’s important August Nonfarm Payrolls report.
USD outlook stable as Fed’s hawkish stance and resilient US data support Dollar
Analysts from OCBC Group Research describe their recent adjustments to currency forecasts as a “reset rather than a reversal,” emphasizing that they have revised their projections post the earlier USD dip but still anticipate moderate USD strength into early 2027. They believe that Fed Chair Warsh’s “hawkish tone bolstered Fed credibility,” and combined with “resilient growth and persistent inflation,” this should maintain a restrictive policy and support the USD, suggesting a gradual upward trajectory for the Dollar in the coming years.
On the other hand, the Indonesian Rupiah (IDR) continues to face pressure following domestic inflation reports. Indonesia’s annual inflation rate edged up to 3.19% in August from 2.88% in July, slightly surpassing market expectations of 3.13%, while still being within the Bank Indonesia’s target range of 1.5%–3.5%. Core inflation hit its highest point since March 2023 at 2.92%, exceeding the forecast of 2.8%, and monthly consumer prices climbed back by 0.21%.
In addition, manufacturing activity in China, Indonesia’s primary trading partner, expanded for the ninth month in a row, with the RatingDog Manufacturing Purchasing Managers’ Index (PMI) rising to 51.5 in August, surpassing the anticipated 50.9 and enhancing overall economic optimism.
