FX.co ★ Rupiah Set for Second Weekly Decline Amid Dollar Strength

The Indonesian rupiah depreciated toward IDR 17,950 per U.S. dollar on Friday, extending its recent slide as the dollar index hovered near a two-month high. The move reflected expectations that the Federal Reserve could tighten policy further, with inflation worries intensifying on the back of elevated oil prices and resilient U.S. economic data.

On the domestic front, sentiment was cautious ahead of next week’s releases of August trade figures and September inflation data. Indonesia’s annual inflation quickened to 3.19% in August, driven by higher food prices partly associated with El Niño. Fiscal concerns also persisted due to the country’s dependence on oil imports, while policymakers warned that rising energy costs were amplifying inflation risks.

Ongoing foreign-exchange demand from importers and continued capital outflows added to the downward pressure on the rupiah. Earlier in the week, Bank Indonesia left its benchmark interest rate unchanged at 5.75% for the third consecutive month, following a cumulative 100-basis-point increase since May, and reaffirmed its commitment to FX intervention and other stabilisation measures. The rupiah was on track for a second consecutive weekly loss, having fallen nearly 1% so far.