Indonesian Rupiah declines as MSCI’s warning triggers capital outflows

USD/IDR rebounds after registering modest losses in the previous trading day, hovering around 17,870 during the Asian hours on Monday. The Indonesian Rupiah (IDR) struggles against the US Dollar (USD) after Morgan Stanley Capital International’s (MSCI) warning directly triggers capital flight and complicates the central bank's efforts to stabilize the currency. However, traders expect the Indonesia to retain its emerging markets ‌status in a high-stakes review this week.

The USD/IDR pair rises as the US Dollar (USD) strengthens amid increased safe-haven demand, which could be attributed to renewed concerns over a US-Iran peace deal. CNBC reported on Sunday that US President Donald Trump threatened direct strikes on Iran if Hezbollah continues its attacks on Israel.

Trump’s warning has severely clouded the outlook for diplomatic progress between Washington and Tehran, completely dismantling the current peace framework, even as Vice President JD Vance met with Iranian officials for the first round of talks under an interim deal.

However, risk aversion could ease after mediators Qatar and Pakistan announced in a joint statement from Switzerland that both the US and Iran have agreed to a formal roadmap aimed at securing a final peace agreement within the next 60 days.

The Greenback receives support from the hawkish sentiment surrounding the Federal Reserve’s (Fed) policy outlook. Notably, 9 out of 19 Fed policymakers now project at least one interest rate hike this year, with market investors pricing in a potential increase as early as September.