The determinants of exchange rate in Malaysia

Currency exchange value can be very volatile in the foreign exchange rate market as it relates to the economic condition. It has been a hot topic in Malaysia owing to the sharp depreciation and volatility in the domestic currency that adversely affect households and businesses. To help maintain MYR's stability, knowing the determinants that affect it is fundamentally necessary. Further reviews indicate that bulk study under the theme of currency has been done for the developed and developing country however lacks in the Malaysian scenario. Hence, this study examines the determinants of exchange rate in Malaysia. The objective of the study is to identify the significant relationship between selected macroeconomic variables to the exchange rate volatility in Malaysia from year 2009 until 2019. The independent variable that was used in this research consists of crude palm oil rate, lending rate, foreign exchange reserve rate, export rate and import rate. Using the Multiple Linear Regression methodology on a set of time series monthly data, this research has discovered that crude palm oil and total export documented insignificant relationship with exchange rate while foreign exchange reserve, lending rate and total import have significant relationships with exchange rate. Researchers are also advised to study the variables in which data are available from the earlier year such as 1980s to ensure that there are sufficient data for normal sample size when running different statistical tests.