Does a Strong Dollar Always Mean a Weak IHSG? What the Correlation Shows
5 min read
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5 min read
You have probably heard the line: when the dollar gets strong, emerging markets like Indonesia's stock market get weak. It sounds tidy. Money chases the stronger currency, capital leaves places like Jakarta, and the IHSG falls.
Check the actual numbers from the last eight months and the story is messier. In late January 2026, the US Dollar Index (DXY), a measure of the dollar's strength against a basket of major currencies, sank below 97 to a four-year low, bottoming near 95.91. The IHSG was not rallying on that weak dollar. It was in the middle of its worst stretch in years, on its way to a trough five months later. The DXY-IHSG correlation, in other words, does not always point the direction the textbook says it should.
The logic behind the rule is real, just incomplete. When the dollar strengthens, US assets pay relatively more and foreign investors often pull money out of emerging markets like Indonesia to chase that return, selling local stocks and rupiah along the way. When the dollar weakens, that flow can reverse: money looks for higher yield elsewhere, some of it back into markets like the IHSG.
That mechanism is real. It just is not the only thing moving the IHSG, and in 2026 it was not even the main thing.
Start with the period where the textbook story fits. The IHSG bottomed at 5,317 points on 8 June 2026, the low point of a roughly 35% slide over the prior six months. Since then, it has climbed back to 6,258 on 4 August 2026, up 5.77% in the past month alone, though still 16.73% below where it stood a year earlier.
Over that same window, the DXY has drifted the other way. It peaked near 101.3 to 101.4 in late June 2026, eased to about 100.6 by 20 July as cooler-than-expected US inflation data reduced the case for a stronger dollar, and has since slipped further to 99.97 on 4 August, its lowest reading in about seven weeks.
Dollar down, IHSG up. That is the rule working as advertised, and it is the six weeks most people would point to if you asked them to prove the correlation.
Now look at the five months before that recovery, and the pattern reverses.
| Date | DXY (dollar index) | IHSG | USD/IDR |
|---|---|---|---|
| 29 Jan 2026 | ~95.91, a four-year low | Deep in a six-month, ~35% slide | Weakening steadily |
| 8 Jun 2026 | Recovering, back above 100 | 5,317, the trough | Rp 18,100, a record low for the rupiah |
| 22 Jul 2026 | ~100.6 | Recovering | Rp 17,917 |
| 4 Aug 2026 | 99.97 | 6,258, up 5.77% in a month | ~Rp 18,000 to 18,040 |
The dollar spent late 2025 into January 2026 falling to its lowest level in four years, driven mostly by US-specific worries about growth, inflation and debt rather than anything happening in Indonesia. By the textbook rule, a historically weak dollar during that stretch should have been a tailwind for money flowing into markets like the IHSG. Instead, the IHSG was in the steepest part of its own six-month decline toward the June trough.
For roughly two months, a weakening dollar and a falling IHSG moved in the same direction, not opposite ones. The correlation the rule predicts simply was not there.
If it was not the dollar, what was it? The IHSG's slide into its June trough tracked a rupiah crisis that was largely homegrown: a wide balance-of-payments deficit in the first quarter of 2026, an oil price shock tied to the US-Israel-Iran conflict that pushed crude to roughly $95 a barrel, about 50% above a year earlier, and Bank Indonesia scrambling to defend the currency with an off-cycle emergency rate hike to 5.50% on 9 June, followed by a scheduled hike to 5.75% on 18 June. We covered how that rate path fed through to USD/IDR in more detail in our look at the Fed's rate path and the rupiah.
None of that needed a strong dollar to happen. It needed Indonesia-specific pressure on the rupiah, which is a different thing from the DXY moving. The dollar's own direction over the same months was, if anything, working against the sell-off, not causing it.
The lesson is not that the dollar is irrelevant to the IHSG. It is that DXY is one input among several, and in a stretch where Indonesia's own balance of payments, inflation and interest rate policy are under stress, those domestic forces can swamp whatever the dollar is doing globally. Watching DXY alone, and assuming it tells you where the IHSG is headed, would have given you the wrong signal for a two-month stretch this year.
A more reliable read comes from watching the rupiah itself alongside the BI rate, since those two move on Indonesia-specific pressure directly, rather than inferring it secondhand from a global dollar index. NetWort's Macro Context page tracks the BI rate, the USD/IDR rate and the dollar index side by side, updated together, so you can see whether a given week's move in the IHSG lines up with global dollar strength, domestic rate policy, or both at once, rather than assuming it is always one story.