Indonesian Rupiah stays under pressure as Retail Sales YoY decline in June

• Indonesia’s June Retail Sales fell 3.0% YoY, showing the mildest downturn since April as government support boosted spending.
• The US Dollar trimmed losses as surging crude oil prices from geopolitical tensions drove Treasury yields higher.
• CME FedWatch Tool shows market odds for a September Fed rate hike rising above 51% from 44.4% yesterday.

USD/IDR gains ground after two days of losses, trading around 17,850 during the Asian hours on Tuesday. The pair holds onto its gains as the Indonesian Rupiah (IDR) struggles following June Retail Sales data, which showed a 3.0% year-over-year (YoY) drop, a slight recovery from May’s 3.9% decline and the smallest fall since April. Early government support helped cushion households and support consumer demand, though the currency pair remained suppressed.

The USD/IDR pair holds gains as the US Dollar (USD) pares its daily losses, as geopolitical tensions have driven a sharp rally in crude oil, which in turn has pushed Treasury yields higher. Concerns are growing that the Federal Reserve (Fed) may feel compelled to raise rates sooner rather than later, even against the backdrop of a cooling labor market.

Investors are now closely watching upcoming inflation data this week to gauge the Fed's next move, with the CME FedWatch Tool showing that market-implied odds of a 25-basis-point Fed rate hike in September have climbed above 51%, up from 44.4% just a day prior.

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.”