Indonesian Rupiah remains under pressure due to domestic, geopolitical headwinds

• USD/IDR rises as the Indonesian Rupiah weakens from global risk aversion, fiscal anxieties, and doubts over BI autonomy.
• IDX Composite rebounded as bargain hunters stepped in after the index plummeted to its lowest level since late 2020.
• US Dollar may regain ground as ceasefire uncertainty prevails after Netanyahu warned the war against Iran and Hezbollah hasn't ended.

USD/IDR extends its winning streak for the fifth successive day, trading around 18,200 during the Asian hours on Tuesday, nearing the all-time high of 18,247 reached in the previous day. The currency pair appreciates as the Indonesian Rupiah (IDR) faces a confluence of domestic and geopolitical headwinds. The Rupiah is under pressure from heightened global risk aversion, domestic fiscal anxieties, new commodity export policies, and growing market skepticism regarding Bank Indonesia’s (BI) operational autonomy.

Adding to these challenges, BI reported that foreign exchange reserves fell to a two-year low of USD 144.9 billion in May 2026, down from USD 146.2 billion the previous month. This decline, marking the lowest level since June 2024, was primarily driven by government external debt repayments and aggressive central bank interventions to stabilize the IDR amid seasonal domestic demand for foreign currency and volatile global markets.

Investor confidence has been further tested by political developments under Indonesian President Prabowo Subianto, who took office in 2024. Investors are increasingly concerned that the plunging currency could derail his growth agenda, as his administration faces criticism for undoing decades of spending discipline. In particular, ambitious and costly campaign promises, such as providing free meals for millions of school children, have sparked fears of fiscal slippage and eroded trust among international investors.

Despite these macroeconomic pressures, Indonesia’s local financial markets managed a brief reprieve on Tuesday. The IDX Composite index bounced back by 4.74%, to reach near 5,600 at the time of writing, halting a painful five-session losing streak. This technical recovery was driven by bargain hunters stepping in after the index plummeted to its weakest level since late 2020 on Monday. Local market sentiment was also buoyed by strong domestic indicators, including data showing a surge in tax revenue during the first five months of 2026, which the government highlighted as a sign of economic recovery, alongside a 14% year-over-year expansion in adjusted base money (M0) for the second consecutive month.

Meanwhile, the upside for the USD/IDR pair remains capped amid a broader retreat in the US Dollar (USD). The Greenback extended its losses worldwide following a major geopolitical breakthrough in the Middle East, where Iran and Israel agreed to a halt in mutual attacks. This significant de-escalation, sparked by a direct appeal from US President Donald Trump, has injected fresh risk-on optimism into global markets and renewed hopes that comprehensive peace negotiations can finally move forward.