Indonesian Rupiah declines as US Dollar remains stronger amid hawkish Fed tone

USD/IDR extends its winning streak for the eighth successive day, trading around 17,850 during the Asian hours on Monday. The pair remains stronger as the US Dollar (USD) gains support amid hawkish sentiment surrounding the Federal Reserve (Fed) policy outlook. Last week, the US Federal Reserve delivered a 25-basis-point rate hike, its first hike in three years, as officials sought to curb inflation and flagged more hikes in the coming months.

Markets are now pricing in nearly a 56.5% chance of another US rate hike when the Fed meets next in October, compared with nearly 42.5% a week ago, according to the CME FedWatch tool.

Fed Chair Kevin Warsh said that "the plain fact is that inflation is too high and has been for too long." "This summer's inflation readings do not tell me that underlying trends have meaningfully improved," he added.

Traders are closely positioning themselves ahead of Bank Indonesia’s (BI) upcoming policy decision this week. The central bank is set to begin its two-day meeting on Tuesday. This follows its previous decision to leave key interest rates unchanged at 5.75% for a second consecutive month in August, taking a pause after implementing 100 basis points of total hikes since May.

Technical Analysis:

In the daily chart, USD/IDR trades at 17,850. The pair is consolidating after its recent rebound, with price hovering just under the short-term nine-day Exponential Moving Average (EMA) and above the medium-term 50-day EMA, leaving the broader bias neutral with a slight topside tilt. The 14-day Relative Strength Index (RSI) at 57.4559 sits in positive territory but shy of overbought conditions, suggesting improving bullish momentum without signaling exhaustion.

On the topside, a daily close above the nine-day EMA around 17,765 would reinforce buyers’ control and open the way toward further recovery levels, while a sustained break above the 50-day EMA near 17,799 would hint at a more durable bullish phase. On the downside, any pullback that fails to hold above the 50-day EMA would expose the recent reaction lows, with weakening momentum likely if RSI slips back toward the mid-50s area.

Kashkari flags stubborn inflation but leans on resilient growth narrative

Kashkari’s latest remarks score 6.2 on the FXS Speechtracker, essentially in line with the 6.3 historical average and signaling a steady, moderately hawkish tone. Emphasis that inflation “remains too high” and is not just an oil story, alongside references to robust growth, a resilient American economy, improving productivity and a still-strong labor market, underscores a bias toward keeping policy restrictive for longer even as Kashkari hopes real-economy dynamics help bring inflation down. The reminder that the bond market is the Treasury’s responsibility also distances the Fed from recent yield volatility, keeping the focus on the inflation-growth mix.

The FXS Fed Sentiment Index slipped by 1.47 points to 150.61, indicating a modest softening in perceived hawkishness relative to the prior reading. However, with the index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory despite the pullback, consistent with a Kashkari speech that is only marginally less hawkish than the established baseline on the FXS Speechtracker.