Rupiah Weakens as Dollar Firms and Political Risks Mount

The Indonesian rupiah slipped past IDR 18,150 per U.S. dollar on Wednesday, reversing recent gains as a firmer dollar weighed on sentiment following hotter-than-expected U.S. inflation that fueled bets on further Fed rate hikes. The rupiah led regional losses amid mounting political uncertainty after Vice President Gibran Rakabuming reportedly offered to resign amid legal challenges over the validity of his education documents. Concerns over foreign outflows also resurfaced ahead of MSCI's November review of Indonesia's stock market. Meanwhile, recent retail sales data pointed to cooling consumer spending despite robust Q3 GDP growth. Bank Indonesia continued intervening to support the currency, but concerns grew over a policy dilemma between defending the rupiah and sustaining economic growth. The central bank will hold its November policy meeting next week after maintaining its key rate for a fourth straight month in October, following cumulative hikes of 100bps in May and June.

The Indonesian rupiah hovered around IDR 18,050 per U.S. dollar on Tuesday, up for a second straight session as the dollar index eased further amid stabilising energy prices ahead of U.S. inflation data. The rupiah led regional gains, while most Asian currencies traded in narrow ranges. Lower crude oil prices also eased pressure on Indonesia's import bill. Locally, sentiment was underpinned by resilient economic fundamentals, with the economy expanding by 5.47% yoy in Q3. Meanwhile, consumer confidence climbed to a five-month high in October, and retail sales extended their growth streak to a third month in September, albeit at a slower pace. Simultaneously, Bank Indonesia continued intervening to smooth currency volatility, while forex reserves edged higher in October. However, gains were limited by caution over student-led protests in several major cities this week and concerns about potential foreign outflows ahead of MSCI's November review of Indonesia's equity market.

The Indonesian rupiah traded around IDR 18,100 per U.S. dollar on Monday, remaining in a narrow range since last week. A broadly firmer dollar weighed on the currency after stronger-than-expected U.S. jobs data fueled bets on a further Fed rate hike. Elevated oil prices also weighed on the rupiah, straining fiscal conditions, given Indonesia's status as a net oil importer. Locally, Bank Indonesia continued to intervene to smooth currency volatility, with forex reserves edging higher to USD 146.8 billion in October. Traders awaited MSCI's November review later this week, while its final decision on Indonesia's market classification is expected by June 2027. September retail sales data, due Tuesday, was also in focus after a strong August reading. Political tensions lingered after a wiretapping scandal involving senior police officers, with further protests expected this week. Meanwhile, consumer mood hit a five-month high in October despite persistent job cuts across several sectors.