Indonesian Rupiah hits record low vs USD on Middle East tensions; USD/IDR conquers 17,700

The USD/IDR pair prolongs its recent well-established uptrend and advances to a fresh all-time peak, beyond the 17,700 mark, at the start of a new week.

The Indonesian Rupiah (IDR) continues to underperform on the back of economic risks stemming from the ongoing conflict in the Middle East. As Indonesia is a net Oil importer, the war-driven surge in energy prices has increased the country's import and subsidy costs. This led to capital outflows from Indonesia's bond and equity markets amid concerns over the government’s spending plans, market transparency, and central bank independence.

Meanwhile, President Prabowo Subianto spoke about the IDR's weakness and said that villagers were not affected by it because they don't transact in the US Dollar (USD). In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, advanced to a six-week high amid concerns that the war-driven surge in energy prices will rekindle inflationary pressure and force the US Federal Reserve (Fed) to adopt a more hawkish stance.

According to the CME Group's FedWatch Tool, traders are currently pricing in over a 50% chance that the US central bank will raise borrowing costs by the end of this year. The outlook remains supportive of elevated US Treasury bond yields and favors the USD bulls, suggesting that the path of least resistance for the USD/IDR pair is to the upside. Hence, any corrective pullback might still be seen as a buying opportunity and remain cushioned.