Indonesian Rupiah falls to record lows amid political uncertainty and MSCI index concerns

• A record high of 18,272 was reached by USD/IDR as concerns mounted over Indonesia’s emerging-market status.
• Political uncertainty has deepened following Vice President Gibran Rakabuming Raka’s resignation, raising the risk of a split in the ruling coalition.
• Stronger-than-expected US inflation figures have reinforced the hawkish Federal Reserve policy outlook, lending support to the US Dollar.

A fresh record of 18,272 has been set by USD/IDR as worries resurface over Indonesia’s emerging-market status. During Thursday’s Asian session, the pair is trading higher at around 18,260, having opened with an upward gap. Behind the latest decline was MSCI’s removal of a local company from its indices. That marks another setback following the index provider’s warning last month that unresolved investability problems could result in Indonesia’s reclassification as a standalone market.

The resignation of Vice President Gibran Rakabuming Raka has also deepened political uncertainty. His exit threatens to divide the ruling coalition in Southeast Asia’s largest economy, potentially making policymaking more difficult. The administration is already under scrutiny over its wider economic management and flagship policies, including the free school meals programme.

Further support for USD/IDR comes from the US Dollar (USD), which is benefiting from a more hawkish outlook for Federal Reserve (Fed) policy after US Consumer Price Index (CPI) inflation exceeded expectations.

Bets on a December interest rate increase have grown, particularly since Fed Governor Christopher Waller said earlier this week that he would support a quarter-point rise, or even a half-point increase should inflation deteriorate. The CME FedWatch Tool puts the market-implied probability of a December rate rise at around 87%, with a nearly 13% chance of a larger 50 basis point increase.

Technical Analysis: USD/IDR advances towards overbought territory

At 18,260 on the daily chart, USD/IDR continues to climb above its short- and medium-term trend indicators. Both the nine- and 50-period Exponential Moving Averages (EMAs) remain beneath the price, indicating that the uptrend retains solid support following the latest breakout. Meanwhile, the 14-day Relative Strength Index (RSI) stands at 66.99, close to overbought territory. This points to robust upward momentum, although it also increases the likelihood of a brief pause rather than an immediate reversal.

Should a correction develop, the nine-period EMA near 18,147.87 offers the first support, followed by a further cushion at the 50-period EMA around 18,010.74. Holding above these moving averages would preserve the positive near-term bias for USD/IDR, with pullbacks towards the EMA cluster likely to draw renewed buying interest.

Goolsbee reinforces hawkish Fed message as persistent inflation raises concern

An FXS Speechtracker score of 8/10, against the established baseline of 6.8/10, marked a distinctly more hawkish message from the Fed’s Goolsbee and reflected mounting concern over inflation dynamics. Describing the latest CPI as “borderline disturbing” and services inflation as “not coming down,” he characterised inflation as a “real issue” stemming from both costs and demand. His remarks carried a clear warning about overheating prices and the danger of inflation expectations becoming unanchored. Although he described the labour market as steady and stable, his insistence that “everything is always on the table” and that inflation must return to target strengthens the likelihood of a policy bias towards tighter conditions.

A 1.69-point increase took the FXS Fed Sentiment Index to 145.61, leaving it firmly in hawkish territory and in line with the high FXS Speechtracker reading. Within the FXS Fed Sentiment Index framework, the rise indicates that Goolsbee’s comments significantly reinforced perceptions of a hawkish bias in the Federal Reserve’s policy narrative.

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