Rupiah Wobbles as Middle East Turmoil Intensifies; dollar’s Safe-Haven Appeal Questioned

Jakarta, June 16, 2025 – The Indonesian rupiah exchange rate is navigating turbulent waters today, as escalating tensions in the Middle East and shifting global economic winds buffet the currency. Experts predict the rupiah will experience fluctuations,settling in a range between Rp16,300 and Rp16,350 against the U.S. dollar in early trading.

Rupiah Under Pressure: Geopolitical Instability and Trade Concerns

Last week concluded with the rupiah weakening, closing at Rp16,303.5 per U.S.dollar, a 0.38% dip according to Bloomberg data. This downturn reflects growing unease stemming from geopolitical events. The recent flare-up between Israel and Iran has triggered risk-off sentiment among investors, pushing them toward safer assets.

Adding to the pressure, renewed threats of tariff hikes from U.S. President Donald Trump are stoking fears of a global trade war. These factors combine to create a challenging environment for the rupiah.

Domestic Optimism: Retail Sales Offer a Glimmer of Hope

Amidst the external pressures, Indonesia‘s domestic economy offers a potential buffer. Bank Indonesia (BI) anticipates a rise in retail sales for May 2025, with the real sales index (IPR) projected to grow by 2.6% year-on-year. This positive forecast could provide some support for the rupiah, offsetting some of the negative sentiment.

Forex analyst Ibrahim Assuaibi forecasts a fluctuating rupiah,ultimately closing lower within the Rp16,300 – Rp16,350 range,weighed down by the confluence of global uncertainties.

Is the Dollar Losing its Luster as a Safe Haven?

Analysts are increasingly questioning the U.S. dollar’s traditional role as a safe-haven asset. Despite the recent geopolitical turmoil, the dollar’s rally has been muted. Typically, events like the Israeli strikes on Iran would send investors flocking to the dollar, but this time, the response has been tepid.

Interestingly, the U.S. dollar initially weakened following the attacks before staging a minor recovery. This tepid response casts doubt on its long-held safe-haven status.

Oil Price Surge: A Double-Edged Sword for the U.S. Dollar

The U.S. dollar’s muted reaction is particularly noteworthy given the surge in oil prices.With the U.S.now the world’s largest oil producer, rising crude prices should, in theory, benefit the dollar. However, the currency’s failure to capitalize on this suggests a deeper shift in investor sentiment.

Hebe Chen, an analyst at Vantage Markets, points to three pillars underpinning the U.S. dollar’s safe-haven status: economic stability, liquidity, and credibility. “The weakening of the U.S. dollar this year reflects a crack in those three pillars,” Chen notes.

Trump’s Trade Policies: Undermining the Greenback?

Francesco Pesole, an FX strategist at ING, argues that President Trump’s aggressive trade policies are undermining confidence in the U.S. dollar. The “American Selling” trend, driven by investors shedding U.S. assets, is further weighing on the currency.

“U.S.dollars should be traded even higher after last night… This is the next evidence that the status of the U.S. dollar as Safe Haven is starting to fade,” Pesole stated.

The Israeli action has significantly cranked up the dial on Tehran’s nuclear program. Talks between Iran and the U.S. were penciled in for a sixth round in Oman this weekend, however Trump previously stated pessimism that an agreement would be reached.

Rupiah’s Performance Today: A Snapshot

Here’s a summary of the rupiah’s movements throughout the day:

Disclaimer: Currency trading involves risk. This is not financial advice.