Indonesian Rupiah remains subdued as safe-haven demand lifts US Dollar

• USD/IDR rises as escalating US-Iran tensions help the US Dollar recover its daily losses.
• President Trump claimed "total control" over the strategic waterway amid stalled diplomacy and heightened US-Iran rhetoric.
• Indonesia pledged to cap its 2026 deficit under 3% of GDP, backed by a 23%+ surge in tax revenues.

USD/IDR gains ground for the third consecutive day, trading around 17,920 during the early European hours on Thursday. The pair appreciates as the US Dollar (USD) recovers its daily losses amid escalating geopolitical tensions between the US and Iran. A senior Iranian official noted that Washington and Tehran remain at loggerheads over a permanent end to conflicts in the Gulf, reporting zero progress in reviving the interim deal or establishing an implementation timeline.

President Donald Trump stated that the US has "total control" over the strategic waterway amid heightened rhetoric between Washington and Tehran, while diplomatic talks remain stalled. Meanwhile, the Trump administration is pushing to ramp up economic pressure on Iran as military actions have yet to bring the regime to compliance. Planned measures include broadening economic sanctions and implementing a naval blockade to restrict Iranian oil exports.

Indonesia maintained strong fiscal discipline by committing to keep its 2026 deficit under 3% of GDP, backed by a 23%+ year-over-year surge in tax revenue from January to July. Looking ahead, the government is expected to unveil a consumption-focused 2027 budget proposal this Friday.

Meanwhile, Bank Indonesia leadership is in transition as President Prabowo nominated Aida Budiman for Senior Deputy Governor and put forward Destry Damayanti as the sole candidate to succeed Governor Perry Warjiyo.

Rupiah could rebound as markets welcome BI leadership continuity

Analysts at OCBC highlighted that the Indonesian Rupiah has “strengthened to near a 2-month high” earlier this week following the nomination of Destry Damayanti as the sole candidate to lead Bank Indonesia. They note that markets “appear to have taken comfort from Destry’s extensive experience at BI and expectations for policy continuity, including her emphasis on currency stability.” In their view, the nomination “removes an important source of near-term uncertainty following Perry Warjiyo’s departure,” reinforcing investor confidence in the policy and currency stability framework.