- USD/IDR picks up bids to reverse the pullback from a two-month high.
- Firmer Inflation pushes BI towards another rate hike, Fed hawks also keep the reins.
- Sluggish sentiment, light calendar tests intraday traders ahead of the key events.
USD/IDR pares intraday losses around $14,980 during Tuesday’s Asian session, consolidating the two-day losses made around the highest levels since late July. In doing so, the Indonesian rupiah (IDR) pair justifies the market’s anxiety ahead of the monetary policy meetings of the US Federal Reserve (Fed) and the Bank Indonesia (BI).
The IDR’s latest weakness could be linked to the downbeat comments from global rating agency Fitch as it said, “Profits of Indonesia’s modern grocery retailers are likely to come under pressure from weaker consumption due to increased inflation.” The update also mentioned that the BI has reported substantially higher inflation of 4.69% in August 2022, from 2.18% in January 2022 and 1.59% in August 2021.
With this in mind, a Reuters poll suggests that Bank Indonesia will follow a surprise August interest rate rise with another 25 basis point hike at its meeting on Thursday, still moving more slowly than most of its peers in trying to bring down inflation.
On other hand, the CME’s FedWatch tool hints at 82% chance of the 75 basis points of a Fed rate hike during Wednesday’s monetary policy meeting. Also, the tool signals around 18% odds favoring the full one percent upside in the rate by the Fed.
It should be noted that the economic fears surrounding China and Europe also challenge USD/IDR bears. However, downbeat US housing data and inflation expectations seemed to have exerted downside pressure on the quote previously.
Against this backdrop, the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 whereas the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order.
Moving on, USD/IDR traders should closely wait for the Fed vs. BI play as the former is likely to not impress markets even with the hawkish move, which in turn could weigh on the pair in case if the Bank Indonesia manages to please IDR bulls.
Technical analysis
Despite the latest weakness, USD/IDR bears remain off the table unless the quote trades beyond the convergence of the 21-DMA and 50-DMA, around $14,900.