Indonesian Rupiah rebounds from record lows following inflation data

USD/IDR drops as the Indonesian Rupiah strengthens following the release of domestic inflation data.
Indonesia's May headline inflation hit 3.08%, beating market expectations but remaining well within the central bank's target zone.
The US Dollar remains firm amid rising safe-haven demand driven by ongoing geopolitical uncertainty in the Middle East.

Akhtar Faruqui FXStreet

USD/IDR pulls back after reaching a fresh record high of 18,021 on Tuesday, trading around 17,900 at the time of writing. The pair depreciates as the Indonesian Rupiah (IDR) gains support following the release of domestic inflation data.

Indonesia’s annual headline inflation accelerated sharply to 3.08% in May, rebounding from an eight-month low of 2.42% in April and surpassing market expectations of 2.97%, remaining within the central bank’s target comfort zone of 1.5% to 3.5%. Core inflation hit a three-month high of 2.59% compared to the previous month's 2.44%. Consumer prices climbed 0.28% month-over-month, accelerating from a 0.13% rise in April and finishing well ahead of the 0.14% gain projected by analysts.

Moreover, Indonesia’s S&P Global Manufacturing Purchasing Managers Index (PMI) rebounded to 50.0 in May from April’s ten-month low of 49.1, signaling a return to broadly stable factory conditions. This recovery was underpinned by domestic demand, though the export market remained a significant drag amid ongoing shipping disruptions from the Middle East conflict, which continue to weigh on global trade.

Meanwhile, the Indonesian Rupiah (IDR) is finding fresh fundamental support following repeated currency lows earlier this year. The government recently pledged strict transparency regarding a newly formed, state-owned exporter dedicated to key commodities. This strategic initiative is expected to bolster national tax collection, legally mandate that more export earnings are retained onshore, and ultimately improve domestic US dollar (USD) liquidity to help stabilize the IDR.

However, the USD/INR pair received support as the US Dollar (USD) remains firm on increased safe-haven demand amid Middle East uncertainty. Iran’s Tasnim news agency indicated that Tehran has halted indirect negotiations with the United States.

The report also indicated that Iran and its "Resistance Front" allies, spanning Yemen, Lebanon, and Iraq, have established an agenda to completely block the critical Strait of Hormuz and activate additional fronts, including the Bab el-Mandeb Strait, as a means to punish Israel and its supporters.

Economic Indicator

Inflation (YoY)

The Inflation index released by the Statistics Indonesia is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of Indonesian Rupiah is dragged down by inflation. The CPI is used as a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as positive (or bullish) for the Rupiah, while a low reading is seen as negative (or Bearish).

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