Rupiah Weakness Deepens on Fitch Alert, Trade Gap

The Indonesian rupiah dipped toward IDR 17,990 per dollar on Thursday, marking a fourth straight session of losses as broad U.S. dollar strength weighed ahead of the key U.S. nonfarm payrolls report. Domestic sentiment also weakened after Fitch Ratings warned that sustained capital outflows or a prolonged decline in forex reserves could pressure Indonesia's sovereign credit profile, with reserves having fallen to a nearly two-year low in May. On the data front, Indonesia posted its first trade deficit since April 2020 in May, with exports unexpectedly falling while imports maintained double-digit growth, reducing support from external balances. Still, the rupiah's losses were partly limited by lower oil prices, which eased fiscal pressures, along with Bank Indonesia's recent pledge to deploy all available tools to stabilize the currency. Meanwhile, June inflation accelerated further, moving closer to the upper end of the central bank's 1-1/2%-3-1/2% target band.

The Indonesian rupiah slipped toward IDR 17,940 per dollar on Wednesday, extending a three-day decline as the U.S. dollar firmed on growing expectations the Fed could raise rates later this year. Locally, sentiment was weighed down after Indonesia posted a trade deficit in May, the first since April 2020, as exports unexpectedly fell while imports maintained double-digit growth, reducing support from external balance. Further pressure came from data showing factory activity shrank the most in a year in June, reflecting weaker purchasing power and persistent cost pressures. Still, the rupiah's losses were capped by resilient foreign inflows into government bonds and Bank Indonesia securities during June, lower oil prices that eased fiscal pressures, and efforts to trim budget allocations for President Prabowo's main programs. Meanwhile, annual inflation hit a three-month peak in June, due to elevated food prices, though it remained within the upper end of Bank Indonesia's 1-1/2%-3-1/2%.

The rupiah slipped toward IDR 17,900 per dollar on Tuesday, extending prior losses as the U.S. dollar index stayed firm on expectations of further Fed tightening. Markets largely brushed aside remarks from a Bank Indonesia senior official, who pledged to deploy all available tools to stabilise the rupiah. Traders also paid little attention to resilient foreign inflows into government bonds and Bank Indonesia securities, totaling around USD 9 billion through end-June. Lower oil prices, retreating toward pre-Iran conflict levels, likewise did little to support the rupiah despite easing fiscal concerns as the government trims President Prabowo's flagship programs. Focus turned to local data due later this week, where May’s annual inflation accelerated, edging near the upper end of the central bank's target. On the trade front, April’s surplus notched its smallest since 2020, reducing export support. The rupiah is set to continue its recent monthly drop, with a quarterly fall of around 5%.