MUFG’s Lloyd Chan highlights that the USD/IDR rate has reached modern highs, exceeding previous expectations for short-term stabilization. The move is attributed more to domestic confidence and fiscal uncertainty than to the broad strength of the US dollar (USD). While upside risks have increased, MUFG also notes growing signs of rupiah undervaluation and potential constraints from Bank Indonesia’s policy response.
Domestic confidence shock drives USD/IDR
“USD/IDR has reached new all-time highs around 17,300. This exceeds our earlier view of a near-term stabilization around 17,000. The move is less driven by global USD strength and more by a domestic confidence shock, with markets likely to respond to increased fiscal uncertainty.”
“Near-term upside risks to USD/IDR have clearly increased and sentiment remains uncertain. The speed and direction of the recent move suggest that markets are demanding a higher risk premium, particularly in the face of continued elevated oil prices and unfavorable fiscal energy dynamics.”
“However, at the same time, valuation signals are becoming more compelling, pointing to significant undervaluation of the rupiah against the US dollar, while technical indicators show that USD/IDR is entering overbought territory. Policy response functions may become more binding, with Bank Indonesia focusing strongly on rupiah stability. Indonesian sovereign CDS spreads have not shown the kind of upside that is usually associated with the loss of a macro anchor.”
(This article was created with the aid of an artificial intelligence tool and has been reviewed by an editor.)
