USD/IDR Rises Amid Geopolitical Tensions
- The Indonesian Rupiah loses around 1% against the US Dollar due to rising Middle-East tensions.
- US Dollar supported by decreasing odds of a Fed rate cut in November.
- Bank Indonesia intervenes in FX market to support Rupiah’s balance of supply and demand.
USD/IDR continues its winning streak, trading around 15,400.00 amidst geopolitical uncertainties affecting risk appetite. The Indonesian Rupiah weakened against the US Dollar as tensions rise in the Middle-East, causing risk aversion in the market.
US Dollar Strength and Fed Rate Cut Odds
The likelihood of a significant rate cut by the Federal Reserve in November has decreased, supporting the US Dollar. US Treasury yields are gaining ground, with markets now assigning a 65.9% probability to a 25 basis point rate cut and a lower 31.4% chance of a 50-basis-point cut, down from previous estimates.
The US Dollar Index (DXY) continues to rise against major peers as US bond yields stand at 3.65% and 3.80% for 2-year and 10-year bonds, respectively.
Bank Indonesia Intervention and Inflation Rate
Bank Indonesia has intervened in the forex market to support the Rupiah by balancing supply and demand. Inflation in Indonesia fell to 1.84% in September, reaching its lowest level since November 2021 and staying within the central bank’s target range of 1.5% to 3.5%.
Risk Sentiment FAQs
- Risk-on vs. Risk-off Markets
- Effects of Risk-on and Risk-off on Asset Classes
- Currencies Affected by Risk-on and Risk-off Sentiments
Risk-on vs. Risk-off Markets
In financial terms, “risk-on” and “risk-off” describe investor sentiment towards risk during a specific period. In a “risk-on” market, investors are optimistic and willing to take risks, while in a “risk-off” market, investors prefer safer assets due to concerns about the future.
Effects of Risk-on and Risk-off on Asset Classes
During “risk-on” periods, stock markets, commodities (excluding Gold), and certain currencies tend to rise. In contrast, “risk-off” periods see bonds, Gold, and safe-haven currencies like the Japanese Yen, Swiss Franc, and US Dollar gaining value.
Currencies Affected by Risk-on and Risk-off Sentiments
Currencies like the Australian Dollar, Canadian Dollar, New Zealand Dollar, Ruble, and South African Rand usually strengthen in “risk-on” markets due to their reliance on commodity exports. On the other hand, major currencies like the US Dollar, Japanese Yen, and Swiss Franc tend to rise in “risk-off” periods due to their safe-haven status and investor demand for stability.