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16/07/26
15
USD/IDR Rises as Oil Prices Pressure Rupiah Ahead of BI Meeting
USD/IDR recovered after two days of losses and traded near 18,100 in Asian hours on Thursday, as the Indonesian rupiah came under renewed pressure from rising oil import costs. Higher energy prices are widening the risk to Indonesia’s trade balance and adding to inflation concerns, which has increased attention on Bank Indonesia’s policy meeting next week. Investors are assessing whether the central bank may need to tighten policy again after delivering a cumulative 100 basis points of rate increases in May and June.
The rupiah is being supported to some extent by the prospect of further monetary action and by possible government measures aimed at limiting food and industrial price pressures. Even so, the currency remains exposed to a broader risk-off tone in global markets, particularly when investors move toward safer assets.
The US dollar has regained some ground as geopolitical tension between the United States and Iran lifted oil prices and revived inflation worries. Higher crude prices can feed through to transport and production costs, complicating the inflation outlook and potentially keeping interest rates elevated for longer in the United States. That backdrop has given the dollar a firmer tone against several Asian currencies, including the rupiah.
At the same time, recent US inflation data has been softer than expected, tempering expectations for another increase in interest rates by the Federal Reserve in the near term. The June consumer price index fell to 3.5% from 4.2% in May, below forecasts of 3.8%, which initially eased concern that the Fed would soon have to tighten again.
Market pricing now reflects a lower chance of a rate hike in September, with implied odds near 44% compared with 50% a day earlier. Still, the latest inflation reading may not fully reflect the economic impact of renewed US-Iran escalation, leaving the policy outlook uncertain as traders weigh both softer domestic price pressures and rising geopolitical risks.
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