FX.co ★ Rupiah Under Strain Following May Trade Gap

The Indonesian rupiah weakened toward IDR 17,940 per dollar on Wednesday, extending a three-day losing streak as the U.S. dollar strengthened on growing expectations that the Federal Reserve could raise interest rates later this year.

Domestically, sentiment was dampened after Indonesia recorded a trade deficit in May, its first since April 2020, as exports fell unexpectedly while imports continued to grow at a double-digit pace, eroding support from the external balance. Additional pressure came from data showing that factory activity contracted at the fastest pace in a year in June, highlighting softer purchasing power and ongoing cost pressures.

Even so, rupiah losses were partially contained by steady 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 flagship programs. Meanwhile, annual inflation rose to a three-month high in June, driven by elevated food prices, but remained within the upper end of Bank Indonesia’s 1.5%–3.5% target range.