USD/IDR has recovered its losses from the previous trading day, hovering around 18,050 during the Asian hours on Monday. The pair appreciates as the Indonesian Rupiah (IDR) faces pressure following the surprise resignation of Bank Indonesia (BI) Governor Perry Warjiyo, a move expected to rattle investors and reignite concerns over central bank independence. Senior Deputy Governor Destry Damayanti has been appointed interim governor, clarifying that Warjiyo stepped down for personal reasons.
The upside of the USD/IDR pair could be limited as the US Dollar (USD) falls sharply, as geopolitical tensions eased following a weekend pause in military hostilities between the US and Iran, offering a reprieve after 13 days of escalating conflict. However, market participants remain cautious about potential supply disruptions after Iran-backed Houthis in Yemen claimed responsibility for attacks on Saudi Arabian facilities along the Red Sea.
US halted strikes amid growing concerns over depleting interceptor supplies and a shrinking list of remaining targets within Iran. Additionally, General Dan Caine, Chairman of the Joint Chiefs of Staff, reportedly cautioned President Trump on Friday that continuing the military campaign would severely strain critical munitions reserves.
Traders expect the Federal Reserve (Fed) to hold interest rates steady on Wednesday before resuming rate hikes in September. However, a minority of market participants still anticipate a surprise move at this week’s meeting. Moving forward, investors are closely watching upcoming economic indicators, including advance Q2 GDP data, PCE inflation figures, and earnings reports from major US corporations, for further insight into the underlying strength of the economy.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
