Indonesian Rupiah Surges Amid US Dollar Weakness

Despite rising safe-haven demand due to escalating conflicts in the Middle East, the US Dollar (USD) is struggling. The proposed defense spending cuts in Indonesia aim to reinforce its broader fiscal health, but may be offset by increasing global oil prices that drive up inflationary pressures.

The USD/IDR pair continues to hold losses as crude oil prices rise due to the US-Iran conflict. This has fueled expectations of an oil-driven inflation spike, which could prompt the US Federal Reserve (Fed) to resume raising interest rates.

According to the CME FedWatch tool, money markets are currently pricing in a 35.8% chance of a Fed rate hike this month and an 82.1% probability of at least a quarter-point hike in September.