• Indonesia’s September Trade Surplus hit $3.36 billion as export growth accelerated to 11.87% year-on-year.
• October domestic inflation eased slightly to 3.23%, remaining within Bank Indonesia’s target range.
• Easing Middle East tensions limited USD gains, but 75% Fed rate hike odds support dollar strength.

USD/IDR gains after two days of losses, trading around 18,180 during Asian hours on Monday. The currency pair appreciated as the Indonesian Rupiah (IDR) remained subdued following the release of a mix of domestic economic data. Indonesia’s trade performance presented strong top-line numbers, with its trade surplus reaching USD 3.36 billion in September, far exceeding market expectations of USD 1.9 billion. Exports surged by 11.87% year-on-year, significantly outperforming forecasts of 6.45% and accelerating from August’s 6.72% growth.

On the import side, Indonesia saw an 18.41% year-on-year increase in September, falling short of the anticipated 20.83% surge and marking the softest growth rate since March. This deceleration was influenced by contrasting energy trends: while oil and gas imports grew 23.94% year-on-year due to higher purchases of refined oil products, crude oil imports actually dropped by 7.00%. Meanwhile, annual domestic inflation edged down slightly to 3.23% in October from September’s three-month high of 3.28%. This figure came in below market expectations of 3.29%, keeping inflation comfortably within Bank Indonesia’s target range of 1.5% to 3.5%.

Despite the weak Rupiah, the upside potential of the USD/IDR pair could be limited as the US Dollar (USD) contends with losses stemming from easing safe-haven demand. Geopolitical tension decreased as Qatari and Iranian officials engaged in a third consecutive day of discussions aiming to resolve the Middle East conflict before the US midterm elections, offsetting lingering fears of renewed US military action against Iran.

However, the US Dollar retains potential for a rebound driven by growing expectations of a Federal Reserve interest rate hike. According to the CME FedWatch Tool, traders are currently pricing in approximately a 75% chance of a rate increase in December, fueled by recent resilient US macroeconomic data and persistent inflationary pressures.

Dollar stays on the back foot as tech rout weighs, but Fed support lingers

Brown Brothers Harriman’s Elias Haddad argues that the ongoing tech sell-off is likely to keep the Dollar under pressure in the near term, with “the USD index (DXY) likely to test support at 101.00.” However, he stresses that “strong US economic activity and rising price pressures reinforce the Fed’s hawkish bias, keeping rate differentials supportive of USD,” suggesting that underlying fundamentals still provide an important backstop for the currency even as risk sentiment deteriorates.