MUFG Bank’s Senior Currency Analyst shares that the Indonesian Rupiah (IDR) has recovered thanks to a weaker US dollar and efforts by the Bank of Indonesia to stabilize the currency. However, there are still worries about risks that might impact the IDR’s rise. The analysis highlights potential changes in fiscal policy, like possibly raising the 3% limit on fiscal deficits, along with ongoing geopolitical uncertainties, which could slow the IDR’s gains. Keeping a balance for the IDR is challenging due to these ongoing risks.

Report Details

This report was generated using an AI tool and reviewed by an editor. The FXStreet Insights Team, made up of journalists, compiles market observations from reputable experts and insights from various analysts. The Indonesian Rupiah is trading at around 15,850 per USD, recovering as the US dollar weakens. The Bank of Indonesia has kept its policy rate at 6.25% to ensure stability. This strength is a relief after the volatility we saw in late 2025. The currency has bounced back from nearly 16,200 at the end of last year, primarily due to the central bank’s strong commitment. Yet, we must consider rising political risks that could disrupt this stability. Talks about the government’s 2026 budget might lead to a relaxation of the 3% fiscal deficit cap, with proposals suggesting a 3.2% deficit to fund new initiatives. Last year, Indonesia kept the 2025 deficit at 2.8%, but this possible shift in fiscal discipline for 2026 raises concerns for currency strength.

Currency Trading Strategy

Given the limited chances for the IDR to rise significantly, selling out-of-the-money USD/IDR put options could be a wise choice in the coming weeks. This strategy allows us to earn premiums based on the belief that Bank Indonesia’s actions will support the currency, while fiscal worries will likely limit big gains. Essentially, we are betting that the IDR will stay stable or weaken slightly. To protect against a sudden drop due to fiscal or geopolitical surprises, buying medium-term USD/IDR call options is an economical strategy. This approach safeguards against downside risks without needing a large amount of capital. It also lets us take advantage of any possible upswing in the USD/IDR pairing if market sentiment turns negative for the Rupiah. Create your live VT Markets account and start trading now.

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