Indonesian Rupiah declines as domestic political instability weighs and US Dollar remains steady

• Domestic political instability fuels market caution, weighing on the Indonesian Rupiah and lifting USD/IDR.
• Stronger CPI figures bolstered expectations of a Fed rate rise, helping the US Dollar advance.
• A December rate rise carries a probability of nearly 91%, according to the CME FedWatch Tool.

At around 18,140 in Wednesday’s Asian session, USD/IDR is recovering from the previous day’s modest decline. Pressure on the Indonesian Rupiah (IDR) has lifted the pair as domestic political instability prompts greater caution in markets.

Adding to the uncertainty, Vice President Gibran Rakabuming Raka told President Prabowo Subianto of his intention to resign during a meeting. His offer came after two consecutive court rulings concerning his overseas educational qualifications. Among them was a Supreme Court decision invalidating his high school equivalency certificate, raising doubts over his eligibility to hold office and prompting calls for parliamentary impeachment proceedings.

The latest US inflation figures have strengthened expectations of a Federal Reserve (Fed) rate rise in December, supporting the US Dollar (USD) and pushing USD/IDR higher. Markets now assign approximately a 91% probability to an increase next month, according to the CME FedWatch Tool.

October’s US Consumer Price Index increased by 0.4% month-on-month, above the 0.3% forecast but below September’s 0.6% rise. Excluding food and energy prices, Core CPI advanced 0.3%, exceeding the 0.2% estimate and maintaining September’s pace. Owing to last year’s government shutdown, the Bureau of Labor Statistics did not publish annual figures for October.

USD holds firm as markets price in a more hawkish Fed

TD Securities expects support for the Dollar to persist over the coming sessions, stating that “the USD will likely stay bid in the near-term as the market assesses odds of a more hawkish Fed.” In the bank’s view, recent figures have prompted investors to reconsider the policy outlook, underpinning the US currency as those expectations are repriced.