Higher oil prices and inflation risks put Indonesian Rupiah under pressure

• High oil prices and El Niño-related food inflation weigh on the Indonesian Rupiah, alongside concerns over MSCI policy.
• Further sharp losses in the Indonesian Rupiah are being cushioned by BI’s liquidity interventions.
• Weak US housing figures and uncertainty over Fed rates could constrain US Dollar advances.

With global oil prices climbing and fuelling concerns over Indonesia’s fiscal position, USD/IDR trades near 18,070 in Thursday’s Asian session, advancing for a second consecutive day. Pressure on the Indonesian Rupiah (IDR) has supported the pair’s upward momentum.

El Niño-related increases in food prices are also sustaining strong domestic inflationary pressure. Sentiment deteriorated further when President Prabowo criticised MSCI’s proposed revisions to Indonesia’s market classification, intensifying concerns about possible foreign capital outflows. Bank Indonesia (BI) has, however, introduced liquidity measures that have softened the Rupiah’s overall fall.

IDR Remains Under Pressure as BI Warns of Wider Current Account Deficit and MSCI Risks

A substantial weakening in Indonesia’s external balances is now expected by Bank Indonesia, according to strategists at Brown Brothers Harriman. They note that BI “projects Indonesia’s current account deficit (1% of GDP in Q2) to widen to be between 1.6% and 2.4% of GDP in 2026.” In their view, the anticipated deterioration “raises external funding needs just as MSCI downgrade risks threaten capital outflows,” with the combination seen as “keeping IDR under downside pressure.”

Recent US Dollar (USD) weakness could nevertheless restrain further advances in USD/IDR. Signs of a slowing US economy have emerged in recent releases: housing starts declined in September, while pending home sales fell to a record low.

The outlook also hinges on expectations for US monetary policy. Traders assign an 84% probability to the Federal Reserve leaving interest rates unchanged at its next meeting, according to the CME FedWatch Tool, while pricing in a 90% likelihood of a December rate rise. Uncertainty nonetheless remains elevated after Fed Chair Kevin Warsh’s recent remarks offered no clear guidance on when, or whether, further rate changes would be needed.

Technical Analysis: USD/IDR Retains a Bullish Bias

At 18,070 on the daily chart, USD/IDR retains a bullish near-term outlook. Spot remains above both short- and medium-term levels, indicating that buyers are holding their ground at higher prices. With the 14-day Relative Strength Index (RSI) around 61 in positive territory, upward momentum appears robust without yet becoming overstretched.

The nine-day Exponential Moving Average (EMA), near 18,020.85, offers the first support on a decline. A more extended pullback would bring the 50-day EMA at 17,906.01 into focus as a lower dynamic support level. While the pair remains above these moving averages, the technical picture favours buying on dips. The lack of nearby overhead levels also suggests room for additional gains before new resistance areas take shape.

(The technical analysis of this story was written with the help of an AI tool. Know more.)