Why is the Indonesian Rupiah weakening amid domestic political instability and a stable US Dollar?

Caution over domestic political instability weighs on the Indonesian Rupiah, lifting USD/IDR.
Higher expectations of a Fed rate hike following stronger CPI data supported gains in the US Dollar.
A December rate hike carries a probability of nearly 91%, according to the CME FedWatch Tool.

Pressure on the Indonesian Rupiah (IDR), as political instability heightened market caution, lifted USD/IDR during Wednesday's Asian session. Trading near 18,140, the pair recovered after posting modest losses a day earlier.

A meeting between Vice President Gibran Rakabuming Raka and President Prabowo Subianto added to the uncertainty, with Gibran expressing his intention to resign. His offer came after two consecutive court rulings on his foreign educational credentials. These included a Supreme Court decision that invalidated his high school equivalency certificate, casting doubt on his eligibility for office and prompting demands for parliamentary impeachment proceedings.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Support for the US Dollar (USD) is also lifting USD/IDR, as the latest US inflation figures increased expectations of a Federal Reserve (Fed) rate hike in December. Markets now assign approximately a 91% probability to a rate increase next month, according to the CME FedWatch Tool.

October's US Consumer Price Index increased 0.4% month-on-month, exceeding the 0.3% forecast despite easing from September's 0.6% rise. Excluding food and energy prices, Core CPI advanced 0.3%, unchanged from September's pace but above the 0.2% estimate. Annual figures for October were not published by the Bureau of Labor Statistics because of last year's government shutdown.

Can expectations of a more hawkish Fed keep the USD supported?

TD Securities expects support for the Dollar to persist over the coming sessions. The bank said that “the USD will likely stay bid in the near-term as the market assesses odds of a more hawkish Fed.” In its assessment, recent data have prompted investors to reconsider the policy outlook, underpinning the US currency as those expectations are repriced.

Indonesian Rupiah: Frequently Asked Questions

Which key forces shape the Indonesian Rupiah's movements?

Global market conditions, domestic economic fundamentals, movements in commodity prices and proactive central bank intervention all influence the Indonesian Rupiah (IDR). The direction of this emerging market currency is closely linked to the resilience of the domestic economy as well as the pace of international economic activity.

How does Bank Indonesia policy affect the Indonesian Rupiah?

Strategic monetary policy and direct market operations make Bank Indonesia (BI) central to Rupiah stability. Adjustments to benchmark interest rates help the central bank manage yield differentials relative to major global central banks, including the US Federal Reserve, to draw in and retain foreign portfolio investments. To moderate currency volatility, BI also operates a "triple-intervention" framework across the spot, derivative (DNDF) and government bond markets. Monetary instruments such as Sekuritas Rupiah Bank Indonesia (SRBI) complement these efforts by supporting capital inflows.

Which macroeconomic conditions determine the Indonesian Rupiah's value?

The IDR's fundamental strength rests on domestic inflation, trade performance and the overall state of public finances. These factors are closely connected to Indonesia's trade and current account balances. Exchange rate movements are also directly influenced by global liquidity trends and international investors' appetite for risk or preference for safety.

How does the Indonesian Rupiah respond to global commodity prices?

Higher global commodity prices benefit Indonesia through its substantial exports of palm oil, coal, nickel and natural gas. By generating trade surpluses and boosting foreign currency inflows, these price gains strengthen the Rupiah. The effect of higher crude oil prices is different, however, as Indonesia is a net crude oil importer. Costlier oil increases its foreign exchange burden, widens the current account deficit and puts downward pressure on the currency's value.