Indonesian Rupiah slips due to stronger US Dollar, soaring oil prices

USD/IDR gains ground for the third successive day, trading around 17,700 during the early European hours on Monday. The pair appreciates as the US Dollar (USD) gains support amid aggressive Federal Reserve (Fed) rate-hike bets for Wednesday’s decision following hotter US inflation reports.

The US Consumer Price Index (CPI) accelerated in August, reinforcing expectations that the US central bank will raise interest rates next week. The CME FedWatch tool suggests that the financial markets have priced in nearly an 87% probability of a quarter-point rate hike at the Fed's September meeting, up from 59% a week ago.

Data released by the Bureau of Labor Statistics on Friday showed that the US CPI rose 0.4% MoM in August, putting the 12-month increase at 3.4%. Both readings came in line with market expectations. Meanwhile, the core CPI, which excludes volatile food and energy prices, increased by 0.3% on a monthly basis, versus 0.2% prior, beating the forecast of 0.2%.

However, analysts at HSBC highlight that recent data releases have shifted the global monetary policy narrative away from the US. They note that, “cyclically, US data has disappointed since early July while data elsewhere has been firmer,” a divergence that has “prompted a dovish repricing of Fed expectations alongside a more hawkish repricing for other major central banks.” This evolving backdrop, in HSBC’s view, underscores the growing contrast between softer US momentum and relatively stronger performance in other major economies.

Additionally, the USD/IDR pair rises as the Indonesian Rupiah (IDR) struggles due to a jump in oil prices, which could further stoke inflation and weigh on Indonesia’s fiscal position as a net oil importer.

Crude oil prices are rising toward nearly four-month highs following a drone attack that forced Saudi Arabia to shut down a major crude pipeline. This disruption has heavily impacted a critical route traditionally used to bypass the Strait of Hormuz. As a precautionary measure, Saudi operations on the East-West pipeline were suspended immediately following Thursday's attacks, and officials have not yet indicated when normal operations will resume.