Indonesian Rupiah falls as domestic political instability weighs; US Dollar holds steady

Political instability in Indonesia fuels market caution, weighing on the Indonesian Rupiah as USD/IDR advances.
Stronger CPI figures lifted expectations of a Fed rate hike, boosting the US Dollar.
Nearly 91% odds of a December rate hike are indicated by the CME FedWatch Tool.

USD/IDR trades near 18,140 in Wednesday’s Asian session. The pair is recovering from the previous day’s modest decline as political instability in Indonesia prompts greater market caution, putting pressure on the Indonesian Rupiah (IDR).

A meeting at which Vice President Gibran Rakabuming Raka told President Prabowo Subianto of his intention to resign added to the uncertainty. 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, raising doubts over his eligibility to hold office and prompting calls for parliamentary impeachment proceedings.

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

Higher expectations of a December Federal Reserve (Fed) rate hike following the latest US inflation release are supporting the US Dollar (USD) and lifting USD/IDR. 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, above the 0.3% forecast but below September’s 0.6% rise. Excluding food and energy, Core CPI advanced 0.3%, unchanged from September’s pace and exceeding the 0.2% estimate. Annual figures for October were not published by the Bureau of Labor Statistics because of last year’s government shutdown.

Hawkish Fed expectations underpin USD

TD Securities expects the Dollar to retain support over the coming sessions. The bank argues 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. That repricing of expectations continues to underpin the US currency.

Indonesian Rupiah: Key Questions

Main drivers of the Indonesian Rupiah

Global market conditions, domestic economic fundamentals, changes in commodity prices and proactive central bank intervention all influence the Indonesian Rupiah (IDR). These forces interact dynamically. As an emerging market currency, the Rupiah relies heavily on the resilience of Indonesia’s economy and the momentum of the international economy.

Bank Indonesia’s influence on the Rupiah

Strategic monetary policy and direct market operations make Bank Indonesia (BI) central to Rupiah stability. Changes to benchmark interest rates allow BI to manage yield differentials relative to major global central banks, such as the US Federal Reserve, helping attract and retain foreign portfolio investment. 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 operations by supporting capital inflows.

Macroeconomic forces behind the Indonesian Rupiah’s value

Domestic inflation, trade performance and the overall state of public finances determine the IDR’s fundamental strength from a macroeconomic standpoint. These fundamentals are closely linked to Indonesia’s trade and current account balances. Exchange rate movements also respond directly to global liquidity trends and international investors’ appetite for risk, whether sentiment is risk-on or risk-off.

Global commodity prices and the Indonesian Rupiah

Higher global commodity prices benefit Indonesia as a major exporter of palm oil, coal, nickel and natural gas. They generate trade surpluses and greater foreign currency inflows, supporting a stronger Rupiah. Yet Indonesia is also a net crude oil importer. Higher global oil prices therefore add to its foreign exchange burden, widen the current account deficit and put downward pressure on the currency.