Indonesian Rupiah strengthens as US Dollar declines on potential Yen intervention
- USD/IDR depreciates as the US Dollar struggles amid a sharp Yen rally and slowing US private employment growth.
- Investors await weekly jobless claims and the August payrolls report for Federal Reserve rate guidance.
- Bank Indonesia's Destry Damayanti pledged responsive policies to maintain economic stability while supporting growth.
USD/IDR loses ground for the second successive day, trading around 17,730 during the Asian hours on Thursday. The currency pair experiences downward pressure as a sharp rally in the Japanese Yen (JPY) weighed heavily on the US Dollar (USD). This surge was fueled by growing market speculation that authorities conducted a rate check and may be preparing to intervene directly in foreign exchange markets.
Meanwhile, the Greenback faced additional headwinds following Wednesday's economic data, which revealed a slowdown in US private employment growth for August. Despite these weaker labor signals, financial markets continue to price in roughly a two-thirds probability that the Federal Reserve will raise interest rates later this month.
US private-sector job growth slowed in August, adding just 38K positions, missing the expected 47K and dropping below July’s revised 46K gain, according to ADP data. Market participants are now closely monitoring upcoming US economic indicators, focusing on Thursday’s weekly jobless claims and Friday’s comprehensive August payrolls report for clearer direction on the monetary policy path.
In Indonesia, Destry Damayanti, the first female governor of Bank Indonesia (BI), pledged to keep policy responsive to economic challenges while promoting stability and supporting growth. MUFG’s Lloyd Chan remains cautious on the Indonesian Rupiah as domestic inflation accelerates and Gross Domestic Product (GDP) growth stays above 5%. The trade balance has improved slightly but remains weaker than 2025 averages due to higher Oil and gas imports. While Bank Indonesia’s (BI) policy support and intervention framework offer near-term backing, sustained Brent prices above $90 could pressure Indonesia’s fiscal and external positions and weigh on IDR.
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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