Indonesian Rupiah gains support amid financial hub plans, geopolitical tensions ease

USD/IDR continues its losing streak for the sixth successive day, trading around 17,940 during the Asian hours on Tuesday. The pair depreciates as the Indonesian Rupiah (IDR) finds support following positive market sentiment after the news that Indonesia International Financial Center (PFII) projects aim to position Jakarta as a competitive regional financial hub by allowing transactions to be conducted in foreign currencies and adopting English as an operating language.

However, the Indonesian Rupiah's gains were somewhat capped as traders exercised caution ahead of Bank Indonesia’s (BI) upcoming policy decision. The central bank commenced its two-day meeting after having already raised interest rates by a cumulative 100 basis points between May and June to bolster the domestic currency. Further pressure mounted from rising global oil prices, which stoked fiscal concerns despite Indonesia's budget execution remaining broadly on track for the first half of 2026.

Adding to the cautious atmosphere, Moody’s Ratings maintained a wary outlook on Indonesia, citing ongoing policy uncertainty and risks to fiscal sustainability. Martin Petch, a Vice President in Moody’s sovereign risk division, noted that the balance of risks has turned slightly more negative since the agency downgraded Indonesia’s outlook to negative in February. He highlighted that fiscal outcomes for both this year and next are facing heightened strain due to significantly increased subsidy costs, particularly following the escalation of the Iran war.

The US Dollar (USD) struggled as risk aversion eased following emerging diplomatic signals. Iranian officials reported receiving mediator proposals aimed at de-escalating tensions with the United States, with reports even hinting at the possibility of a 10-day ceasefire.

According to Axios reports, US President Trump is currently weighing a decision between a temporary ceasefire to reopen the strategically crucial Strait of Hormuz and launching a full-scale joint military campaign alongside Israel, all while US forces continue to assemble in the region as talks progress.