Indonesian Rupiah plummets to 17,324 or fresh record low vs USD on Mideast tensions

The USD/IDR pair gains strong follow-through positive traction for the third successive day and rallies beyond the 17,300 level, hitting a fresh all-time peak during the Asian session on Thursday.

The Indonesian Rupiah (IDR) ranks among the worst-performing emerging Asian currencies this month and continues to underperform  amid economic risks stemming from elevated Middle East tensions. Furthermore, the US-Iran standoff over the Strait of Hormuz remains supportive of elevated Crude Oil prices, fueling concerns about rising inflationary pressures and Indonesia's trade balance. Furthermore, the risk-off impulse is driving capital towards safe-haven assets, like the US Dollar (USD), and contributing to the USD/IDR pair's strong move higher.

Thomas Djiwandono, Deputy Governor of Bank Indonesia (BI), said that the IDR depreciation is caused by rising global uncertainty and reiterated the central bank's efforts to strengthen the interest rate structure to attract foreign inflows. Thomas added that the BI will continue increasing the intensity of intervention to stabilise the domestic currency. Moreover, Chief Economic Minister, Airlangga Hartarto, said on Thursday that the economic growth in the first quarter is expected to reach around 5.5% on the back of holiday spending and government stimulus. This, however, fails to provide any respite to the IDR.

The USD, on the other hand, benefits from persistent geopolitical uncertainties and expectations of a less dovish Federal Reserve (Fed) amid still sticky inflation and resilient economic activity. Meanwhile, the initial optimism led by a temporary extension of the US-Iran ceasefire fades rather quickly amid the lack of progress in peace talks . This, in turn, tempers investors' appetite for riskier assets, which further underpins the Greenback's safe-haven status and contributes to the USD/IDR pair's move up. The fundamental backdrop favors bullish traders, though extremely overbought conditions warrant some caution.