Indonesian Rupiah struggles amid record deficit, external pressures

USD/IDR halts its three-day losing streak, trading around 17,770 during Asian hours on Tuesday. The Indonesian Rupiah (IDR) struggles amid persistent external pressures, driven by a record USD 12.5 billion current account deficit in Q2 2026. Elevated oil prices, firm import demand, and softer export performance are expected to keep external balance under strain. Caution among traders persists ahead of upcoming July trade data and August inflation metrics, with El Niño risks adding to concerns over potential food-price increases. Despite these challenges, the downside for the Indonesian Rupiah may remain limited due to optimism around Bank Indonesia's policy stance under acting Governor Destry Damayanti. Bank Indonesia held interest rates steady for a second consecutive month in August, following a cumulative 100-basis-point rate hike since May. The USD/IDR appreciates as the US Dollar gains safe-haven support amid escalating geopolitical tensions, particularly US secondary sanctions against Iranian-trading entities. US Treasury Secretary Scott Bessent warned that a major financial institution could face enforcement action, explicitly excluding Chinese entities. However, further USD gains may be capped by the US Treasury’s decision to double buyback operations for longer-dated bonds, potentially altering market liquidity and yields. Technical analysis shows USD/IDR trading around 17,770, with a bearish near-term bias despite recent moderation in downside pressure. Immediate resistance is at the nine-period EMA near 17,830.89, while the 50-period EMA at 17,877.96 acts as a higher barrier. Scotiabank strategists note a bearish technical backdrop for the USD, acknowledging some easing in pressure but emphasizing no reversal is evident yet. The article includes a brief explanation of risk-on and risk-off market conditions, detailing how currencies like the USD, JPY, and CHF typically perform during such periods.