Rupiah Weakens in Early September: What's Behind the Decline?

The Indonesian rupiah experienced a notable decline on Tuesday, dropping by 22 points, or 0.12%, to Rp17,744 per US dollar, down from the previous close of Rp17,722. This weakening trend was primarily driven by a surge in global oil prices and heightened tensions between the United States and Iran.

Rully Nova, an analyst at Woori Bank, attributed the rupiah's decline to the rising oil prices, which reached US$91 per barrel at the time. This escalation in oil costs coincided with the ongoing U.S.-Iran conflict. In a statement quoted by ANTARA, Rully emphasized that the rupiah's weakness was largely influenced by these global oil price increases, which added to the existing pressures stemming from the escalating tensions between the two nations.

The rupiah's depreciation came on the heels of the U.S. military action against two Iranian missile launchers on Larak Island on Sunday, August 30, 2026. This marked the first such attack on Iranian territory since late July. The U.S. operation targeted what authorities believed to be missile systems prepared for launching mine-laden rockets into the Strait of Hormuz.

In response, Iran retaliated by allegedly striking U.S. military positions in Jordan. The escalating conflict between the two nations also contributed to investor sentiment, with rising inflation expectations and surging U.S. government bond yields further influencing the rupiah's downward trajectory. According to Rully, U.S. inflation expectations stood at 0.39% monthly and 3.6% annually, while the 10-year U.S. government bond yield increased by 5.8 basis points to 4.77%, and the 20-year bond yield rose by 6.7 basis points to 5.27%.