Macroeconomic Determinants of Exchange Rate Movements: Evidence from ASEAN Countries

Abstract

This study examines the macroeconomic determinants of exchange rate fluctuations across six ASEAN economies, Indonesia, Malaysia, Myanmar, Singapore, the Philippines, and Thailand, over the 2020-2024 period. The divergent macroeconomic trajectories among member states, particularly regarding price stability, monetary policy stances, liquidity conditions, and reserve adequacy, have generated persistent exchange rate instability in the region. These pressures were further intensified by the economic impact of the COVID-19 pandemic, which prompted the adoption of expansionary monetary policies, later followed by tightening cycles as central banks moved toward normalization. A purposive sampling approach was applied to select six countries based on data availability and representativeness of the region's diverse economic profiles. Data were sourced from the IMF International Financial Statistics (IFS), World Bank Development Indicators, and Trading Economics. Empirical results indicate that the interest rate exerts a positive and significant effect on exchange rates. Inflation, money supply, and foreign exchange reserves show no statistically significant effects in this model, potentially reflecting the structural heterogeneity across ASEAN economies. The model yields an R-squared of 0.4489, indicating that approximately 44.89% of exchange rate variation is explained by the four macroeconomic variables. These findings contribute to the understanding of exchange rate dynamics in heterogeneous emerging market contexts and highlight the role of monetary policy instruments in influencing currency movements across the ASEAN region.