Can the Indonesian Rupiah weather higher oil prices and inflation risks?

• Pressure on the Indonesian Rupiah persists as elevated oil prices, El Niño-led food inflation and concerns over MSCI policy weigh on sentiment.
• Further sharp losses in the Indonesian Rupiah are being cushioned by BI’s liquidity interventions.
• Soft US housing figures and uncertainty over Fed rates could constrain gains in the US Dollar.

Pressure on the Indonesian Rupiah (IDR) is supporting USD/IDR, which is trading near 18,070 in Thursday’s Asian session after advancing for a second consecutive day. Higher global oil prices have fuelled concerns over Indonesia’s fiscal position, weighing on the Rupiah and lending momentum to the pair.

Domestic inflation pressures also remain elevated as El Niño weather conditions push up food costs. Adding to the deterioration in sentiment, President Prabowo’s criticism of MSCI’s proposed revisions to Indonesia’s market classification intensified concerns about possible foreign capital outflows. Bank Indonesia (BI) has, however, helped temper the Rupiah’s overall losses through its liquidity measures.

Can IDR withstand a wider current account deficit and MSCI risks flagged by BI?

A significant 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 expected deterioration “raises external funding needs just as MSCI downgrade risks threaten capital outflows,” with that combination seen as “keeping IDR under downside pressure.”

Recent softness in the US Dollar (USD), however, could restrict further upside in USD/IDR. Signs of a slowdown in the US economy have emerged in recent data, including a fall in September housing starts and a record low in pending home sales.

US monetary policy expectations are also influencing the outlook. Traders assign an 84% probability to the Federal Reserve leaving interest rates unchanged at its next meeting and a 90% chance of a December rate hike, according to the CME FedWatch Tool. Uncertainty nevertheless remains elevated after recent remarks by Fed Chair Kevin Warsh offered no clear guidance on when further rate changes might be needed, or whether they would be necessary.

Technical Analysis: Can USD/IDR sustain its bullish momentum?

Buyers appear to be defending higher levels on the daily chart, where USD/IDR stands at 18,070. With spot holding above both short- and medium-term levels, the near-term outlook remains bullish. At around 61, the 14-day Relative Strength Index (RSI) sits in positive territory, signalling solid upward momentum without yet indicating overextension.

The nine-day Exponential Moving Average (EMA), around 18,020.85, offers the first support on a decline. Should the pullback deepen, the 50-day EMA at 17,906.01 provides a lower dynamic support level. Holding above these moving averages would leave the technical picture supportive of buying on dips. With no nearby overhead levels, the pair has room to advance further before new resistance zones take shape.

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