Indonesian Rupiah faces challenges amid higher oil prices, inflationary risks

• The Indonesian Rupiah weakens due to high oil prices, El Niño-driven food inflation, and MSCI policy concerns.
• BI liquidity interventions help cushion further steep declines for the Indonesian Rupiah.
• US Dollar gains may be limited by weak US housing data and Fed rate uncertainties.

USD/IDR extends its gains for the second successive day, trading around 18,070 during Asian hours on Thursday. The currency pair has seen upward momentum as the Indonesian Rupiah (IDR) faces pressure from rising global oil prices, which have heightened fiscal concerns for the nation.

Meanwhile, elevated food costs driven by El Niño weather conditions continue to keep domestic inflationary pressures high. Market sentiment was dampened further after President Prabowo criticized MSCI’s proposed changes to Indonesia’s market classification, adding to fears of potential foreign capital outflows. Nevertheless, liquidity measures introduced by Bank Indonesia (BI) have helped cushion the Rupiah's overall decline.

IDR under pressure as BI flags wider current account gap and MSCI risks

Strategists at Brown Brothers Harriman highlight that Bank Indonesia now expects a meaningful deterioration in Indonesia’s external balances, noting 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.” They argue that this projected widening “raises external funding needs just as MSCI downgrade risks threaten capital outflows,” a combination that is seen as “keeping IDR under downside pressure.”

On the other hand, the upside for the USD/IDR pair may remain capped due to recent weakness in the US Dollar (USD). Recent economic indicators have pointed to a slowing US economy, highlighted by a downturn in September housing starts and pending home sales dropping to a record low.

Additionally, expectations surrounding US monetary policy are shaping the outlook. According to the CME FedWatch Tool, traders are currently pricing in an 84% chance that the Federal Reserve will hold interest rates steady at its upcoming meeting, alongside a 90% probability of a rate hike in December. However, market uncertainty remains high following recent comments from Fed Chair Kevin Warsh, who declined to provide clear guidance on the timing or necessity of future rate adjustments.

Technical Analysis:

In the daily chart, USD/IDR trades at 18,070. The pair holds a near-term bullish bias as spot remains above both the short- and medium-term, suggesting buyers are defending higher ground. The 14-day Relative Strength Index (RSI) at roughly 61 leans into positive territory, hinting that upside momentum is firm but not yet overstretched.

On the downside, immediate support is seen at the nine-day Exponential Moving Average (EMA) near 18,020.85, with the 50-day EMA at 17,906.01 providing a deeper dynamic floor if a pullback extends. As long as USD/IDR holds above these moving averages, the technical backdrop favors dips being bought, with the absence of nearby overhead levels implying scope for further gains before fresh resistance zones are established.

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