Why is the Indonesian Rupiah falling after mixed economic data?

• Indonesia recorded a September trade surplus of $3.36 billion, with export growth picking up to 11.87% year-on-year.
• Inflation stayed within Bank Indonesia’s target band as domestic price growth moderated slightly to 3.23% in October.
• USD gains were capped by an easing of Middle East tensions, although 75% odds of a Fed rate hike underpin the dollar.

Reversing two days of declines, USD/IDR trades near 18,180 during Monday’s Asian session as the Indonesian Rupiah (IDR) stays under pressure after mixed domestic economic releases. Indonesia reported robust headline trade figures: September’s surplus stood at USD 3.36 billion, well above the USD 1.9 billion expected by the market. At 11.87% year-on-year, export growth comfortably exceeded the 6.45% forecast and gathered pace from August’s 6.72%.

September imports rose 18.41% year-on-year, below the projected 20.83% increase and the slowest pace since March. Divergent energy import trends contributed to the slowdown. Higher purchases of refined oil products drove a 23.94% year-on-year rise in oil and gas imports, whereas crude oil imports fell 7.00%. Domestic annual inflation, meanwhile, moderated to 3.23% in October after reaching a three-month high of 3.28% in September. The reading was below the market forecast of 3.29%, leaving inflation comfortably inside Bank Indonesia’s 1.5% to 3.5% target band.

Even with the Rupiah remaining weak, further gains in USD/IDR could be constrained by a decline in safe-haven demand that is weighing on the US Dollar (USD). A third straight day of talks between Qatari and Iranian officials eased geopolitical tensions. Their efforts to resolve the Middle East conflict ahead of the US midterm elections counterbalanced persistent concerns over renewed US military action against Iran.

A recovery in the US Dollar nevertheless remains possible as expectations build for a Federal Reserve interest rate increase. Recent resilient US macroeconomic releases and persistent inflation pressures have led traders to price in approximately a 75% probability of a December rate hike, according to the CME FedWatch Tool.

Can Fed support cushion the Dollar as the tech sell-off keeps it under pressure?

Near-term pressure on the Dollar is likely to persist amid the continuing tech sell-off, according to Brown Brothers Harriman’s Elias Haddad, with “the USD index (DXY) likely to test support at 101.00.” He nevertheless emphasises that “strong US economic activity and rising price pressures reinforce the Fed’s hawkish bias, keeping rate differentials supportive of USD,” indicating that fundamentals remain a significant source of support for the currency despite deteriorating risk sentiment.