- USD/IDR holds positive ground near 15,325 amid higher US Treasury bond yields and the stronger USD.
- Bank Indonesia (BI) is expected to maintain its benchmark interest rate at 5.75% on Thursday.
- The uncertainty in the Chinese economy will be a burden on Indonesia's growth.
- Investors will monitor BI rate decisions, Federal Reserve (Fed) Chair Jerome Powell’s speech.
USD/IDR extends its upside near 15,325 heading into the early European session on Tuesday. The prevailing US dollar buying is bolstered by the anticipation that Federal Reserve (Fed) will prolong the tightening cycle. Market players await the Bank Indonesia (BI) interest rate decision on Thursday and Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday for fresh impetus.
That said, the Indonesian central bank is expected to maintain its benchmark interest rate at 5.75% for the seventh consecutive meeting on Thursday and for the entire year, According to a Reuters poll conducted between August 14 and 21.
Furthermore, the weakening of the Rupiah is driven by the higher US Treasury bond yields and the stronger USD. The 10-year Treasury bond yield stands at 4.344% after climbing to 3.366% the highest level of 2007. Meanwhile, Indonesian 10-year bond yields rise to 6.725%, their highest level since April.
Apart from this, a smaller margin than anticipated rate cut by the People’s Bank of China (PBoC) on Monday exerts pressure on the Rupiah. The Chinese central bank slashed its Loan Prime Rate (LPR) for one year by 10 basis points (bps) to 3.45% from 3.55% and maintained the five-year LPR unchanged at 4.2%. The uncertainty in the Chinese economy will be a burden on Indonesia's growth. Nevertheless, Chinese authorities reported on Sunday that the nation would arrange financial support to resolve local government debt worries, according to Reuters. This, in turn, might cap the downside of the Rupiah and acts as a headwind for USD/IDR.
On the US Dollar front, investors raise their bets on additional rate hikes by the Federal Reserve (Fed) despite the robust labor data and weaker inflation data last week. Fed Chairman Jerome Powell Speaks on Friday will be a guide for investors and could provide insights into economic conditions. A hawkish tone might boost the Greenback against its rivals.
Looking ahead, market players will closely watch the BI monetary policy decision on Thursday. Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday will be in the spotlight this week. Traders will take cues from the data and find opportunities around USD/IDR.
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