Indonesian Rupiah strengthens amid rising consumer confidence, weaker US Dollar
- IDR receives support as the Consumer Confidence Index climbed to 118.5 in August, up from 116.8 in July.
- Indonesia's forex reserves rose to USD 146.5 billion in August, covering 5.4 months of imports.
- US Dollar may find support as rising oil prices heighten inflation concerns.
USD/IDR extends its losses for the second successive day, trading around 17,570 during the early European hours on Wednesday. The pair falls as the Indonesian Rupiah (IDR) gained after the latest Consumer Survey conducted by Bank Indonesia (BI) in August indicated that consumer confidence in economic conditions increased compared with July 2026. This was reflected by an optimistic Consumer Confidence Index (CCI) of 118.5 in August, up from 116.8 in July.
Indonesia's official forex reserve assets increased to USD 146.5 billion at the end of August, up from USD 145.3 billion at the end of July. The reserve assets position was equivalent to 5.4 months of imports, or 5.3 months of imports and servicing the government's external debt, which is well above the international adequacy standard of around three months of imports.
The USD/IDR pair depreciates as the US Dollar (USD) depreciates despite a hawkish tone surrounding the Federal Reserve (Fed) policy outlook. According to the CME FedWatch Tool, traders are currently pricing in about a 60% chance of an interest rate hike at the US central bank's upcoming policy meeting. Looking ahead, the US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data will take center stage later this week. These crucial readings may shed fresh light on the Federal Reserve's next steps ahead of the September meeting.
Additionally, elevated crude prices intensify inflation concerns and strengthen expectations for a Federal Reserve (Fed) rate hike. Oil prices have climbed following a US strike on several Iranian tankers near Kharg Island, a major export hub. These attacks have heightened geopolitical tensions and stoked market concerns regarding potential disruptions to global oil supplies.
US Treasury curve steepens as front-end bears the brunt of inflation repricing
Strategists at Deutsche Bank highlight that the “latest inflation pressures also kept up the pressure on US Treasuries, with yields rising across the curve, particularly at the front-end,” leaving shorter maturities underperforming as investors reassessed the path for US rates.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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