Why is the Indonesian Rupiah hitting record lows amid MSCI index concerns and political uncertainty?

• USD/IDR touched a record 18,272 as concerns mounted over Indonesia retaining its emerging-market status.
• Political uncertainty has deepened following Vice President Gibran Rakabuming Raka’s resignation, raising the risk of a fracture in the ruling coalition.
• A hawkish shift in expectations for Federal Reserve policy is underpinning the US Dollar after US inflation exceeded forecasts.

Upward pressure on USD/IDR persists during Thursday’s Asian session, with the pair trading near 18,260 after opening with a bullish gap. Renewed worries about Indonesia’s emerging-market status drove the exchange rate to a record 18,272. The latest decline in the Rupiah came after MSCI removed a local firm from its indices. This marks another setback following last month’s warning from the index provider that unresolved investability concerns could result in Indonesia’s reclassification as a standalone market.

The resignation of Vice President Gibran Rakabuming Raka has also added to 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 schemes, including its free school meals programme.

Further support for USD/IDR comes from US Dollar (USD) strength, as expectations for Federal Reserve (Fed) policy turn increasingly hawkish in response to stronger-than-forecast US Consumer Price Index (CPI) inflation readings.

Expectations of a December rate increase have gathered pace among traders. Earlier this week, Fed Governor Christopher Waller said he would support a quarter-point hike, or even a half-point increase should inflation deteriorate. The CME FedWatch Tool shows markets assigning around an 87% probability to a December rate hike, together with a nearly 13% chance of a larger 50 basis point increase.

Technical Analysis: Is USD/IDR approaching overbought territory?

USD/IDR is quoted at 18,260 on the daily chart, building on gains above its short- and medium-term trend indicators. With the nine- and 50-period Exponential Moving Averages (EMAs) below the current price, the latest breakout points to an uptrend with solid support. Meanwhile, the 14-day Relative Strength Index (RSI) stands at 66.99, close to overbought levels. This signals robust bullish momentum, although it also increases the possibility of a near-term pause rather than an immediate trend reversal.

Should selling pressure develop, the nine-period EMA around 18,147.87 offers the first support, followed by the 50-period EMA near 18,010.74 as a deeper cushion. The near-term outlook stays positive while USD/IDR remains above these moving averages. Pullbacks towards the EMA cluster are therefore likely to draw renewed buying interest.

Does Goolsbee’s concern over persistent inflation strengthen the hawkish Fed message?

A more hawkish tone was evident in Fed’s Goolsbee’s remarks, which received an FXS Speechtracker score of 8/10 against the established baseline of 6.8/10, reflecting growing unease over inflation trends. He characterised the latest CPI as “borderline disturbing” and said services inflation is “not coming down,” presenting inflation as a “real issue” stemming from both costs and demand. His remarks also 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 assertion that “everything is always on the table” and emphasis on returning inflation to target strengthen the prospect of a policy approach tilted towards tighter conditions.

An increase of 1.69 points took the FXS Fed Sentiment Index to 145.61, placing it firmly in hawkish territory and aligning with the high FXS Speechtracker score. Under the FXS Fed Sentiment Index framework, this rise indicates that Goolsbee’s comments significantly reinforced the perceived hawkish bias in the Federal Reserve’s policy messaging.

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