Indonesian Rupiah weakens as elevated import cost weigh on balance of payments

USD/IDR gains ground after posting modest losses in the previous day, trading around 17,950 during the early European hours on Monday. The pair advances as the Indonesian Rupiah (IDR) faces selling pressure amid market caution ahead of key domestic economic releases, including September foreign exchange reserves and August retail sales figures. Indonesia’s external position remains fragile despite posting a trade surplus in August, with elevated import demands and rising energy costs continuing to weigh on its balance of payments amid heightened Middle East uncertainty.

Driving the USD/IDR pair higher is a strengthening US Dollar (USD), buoyed by safe-haven demand as geopolitical conditions in the Middle East deteriorate sharply. Saudi-backed forces in Yemen recently launched a major offensive to reclaim territory from Houthi forces. Tensions escalated further after the Iran-aligned group seized control of the Bab el-Mandeb strait, a critical maritime chokepoint between the Red Sea and the Gulf of Aden that serves as a vital bypass route for regional crude exports avoiding the Strait of Hormuz.

At the same time, shifting expectations surrounding US monetary policy are shaping broader sentiment. Following softer-than-expected US employment figures, the CME FedWatch Tool indicates that financial markets are now pricing in nearly an 82% chance that the Federal Reserve will hold benchmark interest rates steady at its upcoming policy meeting, up from 74% prior to the labor report. This adjustment reflects a growing market consensus that a cooling US job market will prompt policymakers to keep rates at baseline levels.

US payrolls soften but still signal low-hire, low-fire labour dynamics

Analysts at MUFG/BTMU note that the September US nonfarm payrolls report has "weakened the case for an October Fed hike," even as the underlying picture remains one of a "low-hire, low-fire labour market rather than a sharp downturn." They highlight that "nonfarm payrolls increased by 29k, below the 90k consensus and down from a downwardly revised 133k in August," underscoring a clear loss of momentum in job creation. At the same time, the "unemployment rate edged up to 4.2% from 4.1% as labour-force growth outpaced employment gains," pointing to a softer labour backdrop without yet signalling a pronounced deterioration in overall labour-market conditions.