Rupiah Flat, on Track for Modest Weekly Decline

The Indonesian rupiah traded around IDR 17,960 per U.S. dollar on Friday, little changed from the previous session as traders awaited key domestic data due next week, including June forex reserves, consumer confidence, and May retail sales. Sentiment remained cautious after Fitch Ratings warned that a prolonged decline in forex reserves could pressure Indonesia's credit profile, with figures having fallen to a nearly two-year low in May. Meanwhile, Bank Indonesia reaffirmed its commitment to deploying all available tools to support the currency even as strong foreign inflows into government bonds and Bank Indonesia securities continued in June. Globally, the U.S. dollar index edged lower after weaker-than-expected U.S. labor market data dampened expectations of further Fed tightening this year. For the week, the rupiah is heading for a modest weekly loss of around 0.3%, weighed by Indonesia's first trade gap since April 2020 and a sharp contraction in manufacturing activity.

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%.