Geopolitical risks remain elevated, while valuation measures such as the real effective exchange rate (REER) indicate the rupiah is undervalued against the US dollar. The outlook described is for near-term rupiah stabilisation rather than a disorderly fall.
Policy intervention is reported to have reduced foreign exchange volatility and slowed the pace of USD/IDR gains. Indonesia’s sovereign credit default swap (CDS) spreads have also narrowed.
USD/IDR is described as having entered overbought territory. This is presented as reducing the appeal of further US dollar gains at current levels.
The base case forecast keeps USD/IDR at 17,000 by end-Q2. A gradual improvement in rupiah performance is expected in later quarters as policy support and financial flows strengthen.
We’ve seen geopolitical risks keep pressure on the rupiah, but valuation metrics now show it is meaningfully undervalued against the US dollar. Bank Indonesia’s active policy has successfully slowed the dollar’s advance, helping to calm foreign exchange volatility. This is supported by Indonesia’s March 2026 inflation rate, which came in at a manageable 2.9%, giving the central bank flexibility.
The recent rally has pushed the USD/IDR pair into overbought territory, which reduces the appeal of betting on more dollar gains at these levels. Technical indicators suggest the upward momentum is likely exhausted after the pair tested the 16,900 level last week. For traders, this signals that the path of least resistance may no longer be upwards.
Our base case is for the rupiah to stabilize in the near term, avoiding the kind of disorderly depreciation we saw during previous global shocks, like the one in 2025. This outlook makes selling out-of-the-money USD/IDR call options an attractive strategy for the coming weeks. A trader could look at strike prices above the 17,000 mark for contracts expiring towards the end of the second quarter.
Confidence in Indonesia’s fundamentals is also improving, as seen in the sovereign credit default swap spreads, which have narrowed by 8 basis points this month. Furthermore, preliminary data shows a return of foreign capital, with net inflows of nearly $600 million into the local bond market in the first half of April. This gradual improvement in flows should provide a floor for the rupiah and support its performance later this year.
