Indonesian Rupiah loses ground following China PMI release

USD/IDR appreciates as China's weak July PMI (49.2) weighed on the Indonesian Rupiah.
The US Dollar gained support as traders grew cautious amid hawkish Federal Reserve rate outlooks.
Easing Middle East tensions and diplomatic progress could soften safe-haven demand for the Greenback.

USD/IDR gains ground after two days of losses, trading around 18,120 during the Asian hours on Friday. The pair appreciates as the Indonesian Rupiah (IDR) struggles following the release of disappointing Purchasing Managers' Index (PMI) data from China, Indonesia’s largest trading partner.

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China’s NBS Manufacturing PMI fell into contraction territory at 49.2 in July, down from 50.3 prior and below market estimates of 50.0. Similarly, the Non-Manufacturing PMI dipped to 49.0 against expectations of a 50.0 reading.

The US Dollar (USD) gains support against the Indonesian Rupiah as traders adopt caution on prevailing hawkish sentiment surrounding the Federal Reserve (Fed) policy outlook.

FOMC split underscores policy debate

Analysts at HSBC highlight that the US Federal Reserve "left interest rates unchanged for a fifth consecutive meeting, in line with expectations," but stress that the "9-3 vote revealed a lively debate within the FOMC," underscoring the degree of internal division over the appropriate path for policy from here.

However, the US Dollar (USD) could face challenges on easing safe-haven demand amid easing of global risk aversion brought on by positive diplomatic developments. Tensions in the Middle East have shown signs of cooling as negotiations between the US and Iran progress toward restoring stability in the Strait of Hormuz.

US President Donald Trump announced a historic agreement aimed at the disarmament of Hamas and the withdrawal of Israeli forces from Gaza, a deal reportedly confirmed by senior Hamas officials.

Economic Indicator

NBS Manufacturing PMI

The NBS Manufacturing Purchasing Managers Index (PMI), released by the China Federation of Logistics & Purchasing (CFLP) and China’s National Bureau of Statistics (NBS), is a leading indicator gauging business activity in China’s manufacturing sector. The data is derived from surveys of senior executives at manufacturing companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Renminbi (CNY). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for CNY.

Why it matters to traders?

The monthly manufacturing PMI is released by China Federation of Logistics and Purchasing (CFLP) on the last day of every month. The official PMI is released before the Caixin Manufacturing PMI, which makes it even more of a leading indicator, highlighting the health of the manufacturing sector, considered as the backbone of the Chinese economy. The data is of high relevance for the financial markets throughout several asset classes, given China’s influence on the global economy.

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