Indonesian Rupiah gains on robust Chinese PMI data, budget assurance

IDR strengthens amid strong manufacturing and services PMI readings from China, Indonesia's major trading partner.
Indonesian Finance Minister Suahasil Nazara highlighted budget prudence to shield the domestic economy from global uncertainty.
CME FedWatch suggests that traders price in a 68% chance of an October Fed rate hike and 95% for December.

USD/IDR extends its losses for the second consecutive day, trading around 17,860 during Asian hours on Wednesday. The pair depreciates as the Indonesian Rupiah (IDR) gains strength, driven by improving market sentiment following stronger economic activity in China, Indonesia’s top trading partner.

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Official data from China’s National Bureau of Statistics (NBS) showed the Manufacturing PMI creeping back into expansion territory at 50.1, matching market forecasts and recovering from August's 49.8 reading. Meanwhile, the NBS Non-Manufacturing PMI saw a notable boost, rising from 49.0 in August to 50.2, comfortably beating the market expectation of 49.3.

Private sector data further highlighted China's economic momentum across broader sectors. China’s RatingDog Manufacturing PMI climbed to 52.1 in September, outperforming both the previous reading of 51.5 and the 51.6 consensus estimate. Additionally, the Services PMI edged up to 51.6, topping both the prior month's 51.4 and the expected 51.1, signalling steady overall improvement.

Investor confidence in the Rupiah received an extra boost from domestic policy assurance. Indonesia’s Finance Minister Suahasil Nazara reassured lawmakers that the state budget was designed with prudence and credibility to effectively buffer the national economy against persistent global uncertainty.

However, the downside of the USD/IDR pair could be restrained as the US Dollar (USD) gains support from firming market expectations for additional Federal Reserve (Fed) interest rate hikes.

CME FedWatch Tool data indicates that traders are currently pricing in nearly a 68% probability of a rate hike in October and a 95% likelihood of a 25-basis-point increase in December. Market focus now shifts to Friday's upcoming US Nonfarm Payrolls report, with economists anticipating an addition of 90,000 jobs in September and the Unemployment Rate holding steady at 4.1%.

US funding markets stay calm despite heavier bill supply

BNY Markets’ John Velis highlights that US funding conditions have remained orderly even as Treasury bill supply has increased. He notes that “funding markets have been mostly calm since the Fed commenced reserve management purchases (RMPs), even though late summer bill issuance ramped up significantly and the last two monthly periods actually featured no new RMPs.” This underscores the resilience of money markets despite the combination of heavier T‑bill issuance and a temporary pause in fresh RMPs.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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