Indonesian Rupiah weakens as domestic protests, inflation risks loom

USD/IDR gains ground for the third successive day, trading around 17,800 during the Asian hours on Thursday. The currency pair is under downward pressure as the Indonesian Rupiah (IDR) struggles against fragile domestic sentiment.

Ongoing major protests in Jakarta have left investors wary of potential unrest reminiscent of last year's turmoil. Adding to this caution, markets are bracing for next week's August inflation report, where El Niño-related weather risks threaten to drive up food prices. These concerns are further compounded by lingering external pressures and ongoing uncertainty in global energy markets ahead of the upcoming July trade data release.

Despite these immediate headwinds, reassuring comments from central bank leadership helped cap broader losses. Destry Damayanti, the sole nominee for Bank Indonesia Governor, told parliament that closer policy coordination would not undermine the central bank’s independence. She emphasized that Bank Indonesia will maintain a stance centered on economic stability while actively supporting growth, helping to reinforce market confidence in policy continuity.

The USD/IDR pair remains stronger as the US Dollar (USD) holds its ground, bolstered by robust economic data. July’s PCE price index accelerated to 0.2% month-on-month, edging past the 0.1% consensus, while the annual rate climbed to 3.7%. This surprise uptick has reinforced market bets that the Federal Reserve could deliver one final rate hike before year-end, leaving investors eagerly awaiting policy cues from Fed leadership at the upcoming Jackson Hole symposium.

Traders assess the shifting geopolitical and fiscal dynamics. Crude oil prices continued to slide following diplomatic headway in the Middle East, where Iran and Oman agreed on territorial waters and revenue-sharing along the Strait of Hormuz, easing immediate inflation anxieties.

Meanwhile, fiscal scrutiny intensified over the US Treasury’s plan to double bond buybacks, a move sharply criticized by billionaire investor Stanley Druckenmiller as detrimental to market credibility and a missed opportunity for meaningful debt reform.

Dollar bears eye renewed pressure on DXY

Strategists at Scotiabank highlight that the technical backdrop for the US Dollar Index remains fragile, cautioning that “bear pressure will build on the DXY again below 98.75,” a level they flag as an important threshold for renewed downside momentum.