• USD/IDR picks up bids to snap two-day downtrend after softer Indonesia data.
• Indonesia Inflation eased to 4.69% YoY, -0.21% MoM in August.
• Fitch’s warning to Indonesian Banks join risk-off mood to propel the pair.

USD/IDR rises to $14,905 after Indonesia’s downbeat inflation data during Thursday’s Asian session. In doing so, the Indonesia rupiah (IDR) pair also takes clues from the broad risk-off mood, as well as the hawkish Fed bets, to snap a two-day downtrend.

Indonesia’s Inflation dropped to 4.69% YoY versus 4.90% expected and 4.94% prior in August. However, the Core Inflation rose to 3.04% versus 3.0% market forecasts and 2.86% prior. It should be noted that the monthly prints marked -0.21% figures compared to -0.05% consensus and 0.64% prior.

Also negative for the IDR were the comments from the global rating agency Fitch as it said, “Indonesian banks will face some compression of net interest margins (NIM) as policy interest rates increase in the next year or so, per Reuters. It’s worth noting that Fitch also expects the downside impact to be tepid while also suggesting that the Bank Indonesia (BI) will raise rates by a further 25bp before the end-2022 and another 100bp in 2023, following a 25bp increase in August 2022.

On the other hand, strong yields propel the US Dollar Index (DXY) amid increasingly hawkish Fed bets. That said, the CME’s FedWatch Tool portrays 74.0% chance of a 75 basis points Fed rate hike in September, versus 73.0% the previous day. The US 10-year Treasury yields refresh a two-month high of around 3.21% while the two-year bond coupons jump to the highest levels since 2007, near 3.51% at the latest. Also portraying the sour sentiment is the S&P 500 Futures’ 0.36% intraday fall to the lowest levels since late July, at 3,930 by the press time.

Also contributing to the DXY’s run-up, as well as the USD/IDR strength is the risk-off mood. While portraying the sentiment, shares in the Asia-Pacific bloc grind lower while S&P 500 Futures drop half a percent at the latest. The reason could be linked to the central bankers’ aggression despite economic slowdown fears and grim covid conditions in China. Furthermore, the US-China tussles over Taiwan and softer China Caixin Manufacturing PMI are extra negatives for the IDR.

Having witnessed the initial impact of Indonesia data, the USD/IDR traders should wait for the US ISM Manufacturing PMI for August, expected 52.8 versus 52.0 prior, ahead of Friday’s US Nonfarm Payrolls (NFP). Also important will be the moves of the Treasury bond yields, as well as headlines surrounding China.

Technical analysis

A one-month-old symmetrical triangle restricts immediate USD/IDR moves between $14,800 and $14,920.