Many forex traders focus on global macroeconomic news and central bank policies, but some overlook domestic factors such as the movement of the Jakarta Composite Index (IHSG). Is there really a connection between IHSG and Forex? And how can traders use this information in their trading strategies? Let’s explore this further.
IHSG Drops by 2.34%
Today, Tuesday, February 25, 2025, the Jakarta Composite Index (IHSG) saw a significant decline of 2.34%, closing at 6,591.43 by the first trading session. All stock sectors recorded losses, with the basic industry sector leading the drop at 3.68%, followed by the energy sector down 2.66% and the industrial sector falling 2.81%. (liputan6.com)
Herditya Wicaksana, an analyst at PT MNC Sekuritas, stated that this IHSG correction aligns with the broader decline seen across Asian stock markets. Additionally, foreign investors continued their selling spree, with net sales reaching IDR 3.5 trillion in the previous trading session. The downgrade of MSCI Indonesia by several foreign securities firms has also added pressure on the IHSG. (liputan6.com)
Overall, the IHSG has dropped by 5.16% over the past week, with foreign investors recording net sales of IDR 7.52 trillion throughout 2025. (bloombergtechnoz.com)
How IHSG Can Affect the Forex Market
1. Foreign Capital Flow and Its Impact on the Rupiah (IDR)
IHSG (Indeks Harga Saham Gabungan) is often an indicator of investor sentiment toward Indonesia’s economy. If IHSG rises, foreign investors tend to enter the Indonesian stock market, increasing demand for the rupiah (IDR). As a result, the USD/IDR exchange rate may weaken due to higher demand for IDR.
Conversely, when IHSG declines, foreign investors may withdraw their capital, causing the rupiah to weaken as they convert IDR back to USD or other currencies.
2. Market Sentiment and Risk Appetite
Beyond capital flows, market sentiment plays a crucial role. When IHSG rises, it usually reflects optimism in the Indonesian market, encouraging forex traders to take more risks, including trading the rupiah.
However, if IHSG experiences a sharp correction, many investors may seek safe-haven assets such as the US dollar (USD) or gold. Consequently, demand for USD increases and the rupiah may depreciate.
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3. Bank Indonesia (BI) Policy and Its Effect on Forex
Bank Indonesia (BI) frequently uses monetary policies to maintain rupiah stability. If IHSG declines due to negative sentiment in the domestic economy, BI may respond by raising interest rates to attract foreign capital and stabilize the IDR exchange rate.
Conversely, if IHSG is rising and the economy appears strong, BI may adopt more flexible monetary policies, potentially increasing forex market volatility.
4. Correlation with USD/IDR and Global Markets
IHSG is not only influenced by domestic factors but also by global factors such as Federal Reserve policies, commodity prices, and geopolitical sentiment. When the Fed raises interest rates, foreign capital may leave Indonesia, causing IHSG to drop and putting pressure on the rupiah.
However, if capital inflows into Indonesia increase due to rising commodity prices or positive sentiment towards emerging markets, IHSG may strengthen, and the rupiah may stabilize or even appreciate against the USD.
FAQs
1. Does IHSG movement always affect the forex market?
Not always, but there is a correlation, especially in terms of foreign capital flow and Bank Indonesia’s monetary policies.
2. How can traders use IHSG movement for forex trading?
Traders can monitor IHSG as an indicator of Indonesian market sentiment. If IHSG rises and foreign investors enter, the rupiah may appreciate against the USD.
3. Does USD/IDR always move inversely to IHSG?
Not necessarily, but there is a tendency that when IHSG drops sharply, the rupiah may weaken as foreign investors pull their funds out of Indonesia.
4. What factors can cause IHSG and forex to move in opposite directions?
Bank Indonesia’s monetary policies, global conditions, and macroeconomic factors such as inflation and trade balances can influence both markets differently.
5. Should forex traders always monitor IHSG?
Not mandatory, but if you are trading USD/IDR or other currencies related to Indonesia, understanding IHSG can provide additional insights.
By understanding the relationship between IHSG and forex, traders can make more informed decisions, especially those focusing on currency pairs involving the rupiah.
Conclusion
Although IHSG is not the primary factor in forex trading, its movements provide insights into Indonesia’s economic conditions and how the rupiah might behave. Forex traders looking to trade USD/IDR should monitor IHSG sentiment, foreign capital flows, and Bank Indonesia policies.
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