Key Moments
- Indonesia’s June Retail Sales declined 3.0% YoY, easing from a 3.9% drop in May and marking the mildest contraction since April.
- USD/IDR traded near 17,850 in Asian hours on Tuesday, extending gains as the Indonesian Rupiah stayed under pressure after the sales data.
- CME FedWatch Tool showed the implied probability of a 25-basis-point Fed rate hike in September rising above 51%, up from 44.4% the previous day.
Rupiah Under Pressure After June Retail Sales Data
USD/IDR advanced after two straight sessions of losses, changing hands around 17,850 during Asian trading on Tuesday. The pair maintained its upward bias as the Indonesian Rupiah weakened following the latest June Retail Sales report, which registered a 3.0% year-over-year decline.
The June contraction was less severe than May’s 3.9% fall and represented the smallest year-over-year drop since April. Early government support measures helped soften the blow to households and provided some backing to consumer demand, although the currency pair remained relatively contained despite these mitigating factors.
Market Reaction: Dollar Finds Support as Oil and Yields Climb
The US Dollar recovered part of its earlier losses, helping USD/IDR stay supported. A sharp move higher in crude oil prices, driven by geopolitical tensions, fueled a rise in US Treasury yields and underpinned the greenback.
These developments have intensified worries that the Federal Reserve may consider tightening policy sooner than previously anticipated, even as signs of a cooling labor market persist. The interplay between higher energy prices, elevated yields, and growth concerns continues to shape FX and rates market sentiment.
Fed Outlook and Rate-Hike Probabilities
Market participants are focused on upcoming inflation releases this week to better assess the Fed’s policy path. According to the CME FedWatch Tool, the market-implied probability of a 25-basis-point rate increase at the Fed’s September meeting has moved above 51%, up from 44.4% just one day earlier.
| Event / Metric | Latest Reading | Prior / Reference |
|---|---|---|
| Indonesia Retail Sales YoY (June) | -3.0% | -3.9% (May) |
| USD/IDR (Asian hours, Tuesday) | Around 17,850 | Gaining after two days of losses |
| Implied odds of 25 bps Fed hike in September (CME FedWatch) | Above 51% | 44.4% (previous day) |
Strategist View: Growth and Stagflation Risks
However, according to TD Securities, “we expect output growth to move sideways this year,” as the “lingering impact of the oil shock” continues to weigh on activity. The bank warns that “the Iran conflict presents stagflationary risks, which we expect will keep the Fed on hold for the entire year,” even as “AI and high-income consumers have supported underlying growth.”
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