Higher oil prices and inflation risks pose challenges for Indonesian Rupiah

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

USD/IDR trades near 18,070. The pair is advancing for a second consecutive day during Thursday’s Asian session, as higher global oil prices weigh on the Indonesian Rupiah (IDR) and intensify concerns over Indonesia’s fiscal position.

El Niño-related increases in food prices are sustaining elevated domestic inflationary pressures. Sentiment weakened further when President Prabowo criticised MSCI’s proposed changes to Indonesia’s market classification, fuelling concerns about possible foreign capital outflows. Liquidity measures from Bank Indonesia (BI), however, have softened the Rupiah’s overall losses.

1.6%–2.4% of GDP: BI deficit forecast and MSCI risks weigh on IDR

Bank Indonesia now anticipates a significant weakening in Indonesia’s external balances, 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, this expected 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 restrict further USD/IDR gains. Signs of a slowing US economy have emerged in the latest indicators: September housing starts declined, while pending home sales fell to a record low.

US monetary policy expectations are also influencing the outlook. The CME FedWatch Tool shows traders assigning an 84% probability to the Federal Reserve leaving interest rates unchanged at its next meeting, alongside a 90% chance of a December rate hike. Uncertainty remains elevated, however. Recent remarks by Fed Chair Kevin Warsh offered no clear guidance on when further rate adjustments might come or whether they would be needed.

18,070: Technical outlook

At 18,070 on the daily chart, USD/IDR retains a near-term bullish bias. Spot is holding above both short- and medium-term measures, indicating that buyers are protecting higher levels. With the 14-day Relative Strength Index (RSI) around 61 in positive territory, upward momentum appears solid but not yet excessive.

The nine-day Exponential Moving Average (EMA), near 18,020.85, marks initial support. A more extended retreat would bring the 50-day EMA at 17,906.01 into focus as a lower dynamic support level. Holding above these averages would leave the technical picture supportive of buying on dips. With no nearby overhead levels, the pair appears to have room to advance before new resistance zones form.

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