Indonesian Rupiah gains as Fed pause odds hit US Dollar

USD/IDR inches lower after registering modest gains in the previous day, trading around 18,080 during Asian hours on Monday. Indonesian market participants are assessing the situation after Bloomberg reported that local officials plan to meet with MSCI Inc. executives on Monday.

Regulators were reportedly blindsided by the index provider’s threat to reclassify Indonesia as a standalone market, a significantly harsher step than what officials believed was being considered during months of prior negotiations. Following a private briefing on Sunday, sources indicated that representatives from the Financial Services Authority and the Indonesia Stock Exchange will seek clarity on why MSCI introduced potential standalone status and initiated its consultation earlier than the anticipated November review.

Meanwhile, the USD/IDR currency pair continues to hold losses as the US Dollar (USD) faces pressure from declining expectations of an October interest rate hike by the Federal Reserve. Sentiment around the greenback weakened after Fed Chairman Kevin Warsh spoke at an International Monetary Fund event on Friday, stating he does not prejudge monetary policy decisions and leaving markets without a clear direction ahead of the central bank's October 27–28 meeting.

Expectations for a Fed rate increase have dropped sharply as a result. Data from the CME FedWatch Tool reveals that traders are now pricing in an 83.9% chance that the central bank will leave interest rates unchanged later this month, marking a substantial increase from the 49% probability estimated a month ago.

USD index slide deepens as Scotiabank flags limited support ahead

Strategists at Scotiabank highlight the deteriorating technical backdrop for the USD, noting that “the break below 102 is extending,” and warning that they “see little in terms of support ahead of 101.” This reinforces their view that the Dollar index remains vulnerable as it grinds lower toward the next key support area.