• USD/IDR holds gains as the Indonesian Rupiah weakened following a sharp 3.7% YoY drop in April Retail Sales.
• The US Dollar may further advance as escalating Middle East conflicts drive increased global safe-haven demand.
• A hot US inflation report solidified expectations for a "higher-for-longer" Federal Reserve interest rate environment.

USD/IDR extends gains for the second consecutive day, trading around 17,970 during the Asian hours on Thursday. The pair holds ground as the Indonesian Rupiah (IDR) struggles following the domestic Retail Sales data release.

Indonesia’s retail sector faced a sharp downturn in April, with sales contracting by 3.7% year-over-year. This drop marks a significant reversal from the 3.4% growth recorded in March and represents the first annual decline for the sector since April 2025. On a monthly basis, Retail Sales plummeted by 11.6%, wiping out March’s 10.3% gain and registering the steepest month-over-month decline since June 2022. This sudden pullback highlights a notable cooling in household consumption, as rising non-subsidized fuel prices continue to squeeze consumer purchasing power.

The USD/IDR pair has found strong support as intensifying geopolitical friction drives global demand toward safe-haven assets. In the Middle East, the Israel Defense Forces' Home Front Command issued early civilian defense warnings following rocket launches from Lebanon into northern Israel. Tensions escalated further as US Central Command confirmed the launch of airstrikes in Iran. Adding to the friction, US President Donald Trump warned of severe military consequences if an interim peace agreement is not finalized, accusing Tehran of intentionally stalling negotiations—a claim Iranian officials firmly deny.

The US Dollar (USD) received an additional boost from a hot inflation report, which effectively solidified expectations for a "higher-for-longer" interest rate environment from the Federal Reserve. Driven primarily by war-induced energy price spikes, US inflation accelerated in May to its fastest pace in over three years. The Consumer Price Index rose 4.2% year-over-year and 0.5% monthly, both perfectly matching market forecasts. Meanwhile, core CPI, which strips out volatile food and energy costs, climbed 0.2% on the month and 2.9% annually. Following the data release, financial markets aggressively pivoted, abandoning any remaining expectations for Fed rate cuts this year.