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Indonesian Rupiah declines due to fresh US-Iran military friction

  • USD/IDR rises as Middle East military friction sparks risk aversion, driving safe-haven demand for the US Dollar.
  • US forces downed two Iranian drones near Hormuz, while Iran claimed Sirik explosions stemmed from confronting a non-compliant vessel.
  • BI's Denny Prakoso noted that a rate hike and higher bond yields drove a significant surge in foreign capital inflows.

USD/IDR extends its gains for the third consecutive day, trading around 17,950 during the Asian hours on Friday. The pair appreciates as the US Dollar (USD) receives support amid renewed risk aversion following fresh military friction in the Middle East, which tempered recent diplomatic optimism.

Fox News reported that US forces intercepted and shot down two Iranian one-way attack drones near the critical Strait of Hormuz after they attempted to target commercial vessels. Conversely, Iranian state media attributed explosion sounds in Sirik to a confrontation with a vessel breaching the waterway. They claimed the Islamic Revolutionary Guard Corps (IRGC) issued a warning to an oil tanker, forcing it to comply with a regional traffic ban.

Earlier, US President Donald Trump signaled that a comprehensive peace agreement with Iran could be finalized as early as this weekend, a significant shift following his recent decision to pause planned military strikes on Iran’s energy infrastructure. While the official text still requires formal bilateral approval, Iran’s semi-official Fars news agency indicated that Tehran is likely to accept the terms. According to President Trump, the landmark deal aims to safely reopen shipping lanes in the Strait of Hormuz and secure binding commitments from Iran to abandon its nuclear weapons program.

Bank Indonesia (BI) implemented a rare, off-cycle interest rate hike on Tuesday, raising its benchmark rate by 25 basis points to 5.50%. The proactive move aimed to stabilize the Indonesian Rupiah (IDR) after the currency hit a series of record lows.

On Friday, BI spokesperson Ramdan Denny Prakoso announced that foreign investors have responded positively to the rate hike and the subsequent rise in bond yields, sparking a notable increase in foreign capital inflows this week. This could limit the downside of the Indonesian Rupiah (IDR), restraining the USD/IDR pair’s upside.

A clear sign of this renewed investor confidence was seen during a June 10 auction for Bank Indonesia bonds (SRBI). The auction successfully raised 15 trillion Rupiah ($834.49 million), driven heavily by foreign capital targeting the up-to-one-year tenor bonds. According to Prakoso, foreign capital has also begun flowing back into the broader government bond market, with a particular focus on short- and medium-term tenors. He emphasized that BI will focus on maintaining the attractiveness of domestic financial instruments to ensure steady foreign capital inflows.

Furthermore, the central bank remains committed to stabilizing the Rupiah through consistent and measured interventions across offshore, onshore, and spot Non-Deliverable Forward (NDF) markets.

US Dollar Price Last 7 Days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Australian Dollar.

USDEURGBPJPYCADAUDNZDIDR
USD0.34%0.08%0.16%0.46%1.36%0.78%0.00%
EUR-0.34%-0.26%-0.22%0.13%1.01%0.44%0.00%
GBP-0.08%0.26%0.04%0.40%1.22%0.74%-2.38%
JPY-0.16%0.22%-0.04%0.40%1.31%0.68%-0.75%
CAD-0.46%-0.13%-0.40%-0.40%0.94%0.29%-1.28%
AUD-1.36%-1.01%-1.22%-1.31%-0.94%-0.56%-1.27%
NZD-0.78%-0.44%-0.74%-0.68%-0.29%0.56%-1.04%
IDR0.00%0.00%2.38%0.75%1.28%1.27%1.04%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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