Rupiah Strengthens After Q2 GDP Tops Estimates

The Indonesian rupiah firmed to around IDR 17,930 per U.S. dollar on Wednesday afternoon after briefly slipping near IDR 18,050 in the prior session. Support came from a softer greenback after reports of a possible interim U.S.–Iran deal to reopen the Strait of Hormuz sent oil prices tumbling, easing inflation risks and trimming expectations for further rate hikes. Domestically, sentiment brightened as Q2 GDP expanded 5.29% yoy, beating forecasts despite slowing from Q1. On a quarterly basis, output jumped 3.73%, the fastest in a year, rebounding from a 0.77% drop in Q1. Inflation also cooled to 2.88% in July, a three-month low and well within Bank Indonesia’s target band. However, gains were capped by concerns over external balances amid a persistent trade gap in June following a surge in crude imports. Traders also stayed cautious amid leadership uncertainty at Bank Indonesia after Perry Warjiyo’s abrupt exit, with markets awaiting President Prabowo’s choice for the next governor.

The Indonesian rupiah weakened past IDR 18,000 per U.S. dollar on Tuesday, snapping a four-session winning streak as concerns over the country's external balance resurfaced. Sentiment was pressured after Indonesia posted another trade deficit in June, largely driven by a surge in crude oil imports amid elevated global energy prices. Nerves also grew ahead of Q2 GDP data due Wednesday, with economic growth expected to slow from the strong 5.6% yoy rise in Q1. Still, the rupiah's losses were limited after July inflation eased to a three-month low of 2.88%, comfortably within the central bank's target range of 1-1/2-3-1/2%. Traders remained focused on President Prabowo's upcoming nominations for Bank Indonesia governor following Perry Warjiyo's abrupt exit. Finance Minister Purbaya Yudhi reportedly said he would not seek the position. Globally, the U.S. dollar steadied as investors continued to assess the outlook for Fed policy amid persistent uncertainty about the Middle East conflict.

The Indonesian rupiah traded slightly below IDR 18,000 per U.S. dollar on the first trading day of August, continuing its winning streak to four straight sessions as the greenback eased further following Japan’s confirmed yen-buying intervention. Locally, headline inflation eased to 2.88% in July, marking a three-month low and well within Bank Indonesia’s 1-1/2%–3-1/2% target and reinforcing expectations that price pressures remain contained. Meanwhile, Bank Indonesia reiterated its commitment to stabilisation efforts through a broad mix beyond rates, including spot FX intervention and onshore and offshore NDFs to manage liquidity and attract foreign inflows, complementing a total 100 bps of hikes since May. However, strength was capped by external concerns following a persistent trade deficit in June, driven by surging imports. Meantime, political uncertainty lingered as President Prabowo has yet to submit candidates for central bank governor following Perry Warjiyo’s abrupt exit.