• Afees A. Salisu University of Ibadan, Nigeria
  • Abdulsalam Abidemi Sikiru Central Bank of Nigeria, Nigeria
Keywords: Palm oil;, Exchange rate;, Predictability;, Forecast evaluation;, COVID-19


In this study, we extend the literature analyzing the predictive content of commodity prices for exchange rates by examining the role of palm oil price. Our analysis focuses on Indonesia and Malaysia, the two top producers and exporters of palm oil, and utilizes daily data covering the period from December 12, 2011 to March 29, 2021, which is partitioned into two sub-samples based on the COVID-19 pandemic. Relying on a methodology that accommodates some salient features of the variables of interest, we find that on average the in-sample predictability of palm oil price for exchange rate movements is stronger for Indonesia than for Malaysia. While Indonesia’s exchange rate appreciates due to a rise in palm oil price regardless of the choice of predictive model, Malaysia’s exchange rate only appreciates after adjusting for oil price. However, both exchange rates do not seem to be resilient to the COVID-19 pandemic as they depreciate amidst dwindling palm oil price. Similar outcomes are observed for the out-of-sample predictability analysis. We highlight avenues for future research and the implications of our results for portfolio diversification strategies.


Download data is not yet available.


Amano, R.A., & van Norden, S. (1998). Oil prices and the Rise and Fall of the US Real Exchange Rate. Journal of International Money and Finance, 17, 299-316.

Apergis, E & N Apergis (2020). Can the COVID-19 pandemic and oil prices drive the US Partisan Conflict Index? Energy Research Letters, 1, 13144,

Aslam, F., Aziz, S., Nguyen, D. K., Mughal, K. S., & Khan, M. (2020). On the Efficiency of Foreign Exchange Markets in Times of the COVID-19 Pandemic. Technological forecasting and social change, 161, 120261.

Aziz, M. I. A., & Applanaidu, S. D. (2017). Effects of palm oil price on exchange rate: A case study of Malaysia and Indonesia. Institutions and Economies, 71-87.

Baker, S.R., Bloom, N., Davis, S.J. & Terry, S.J. (2020). COVID-Induced Economic Uncertainty. NBER Working Paper No. 26983.

Bénassy-Quéré, A., Mignon, V., Penot, A., 2007. China and the Relationship Between the Oil Price and the Dollar. Energy Policy, 35, 5795-5805.

Bannigidadmath, D., & Narayan, P. K. (2015). Stock Return Predictability and Determinants of Predictability and Profits. Emerging Markets Review, 26, 153-173.

Borgards, O., Czudaj, R. L., & Van Hoang, T. H. (2021). Price Overreactions in the Commodity Futures Market: An Intraday Analysis of the COVID-19 Pandemic Impact. Resources Policy, 71, 101966.

Campbell, J. Y., & Thompson, S. B. (2008). Predicting Excess Stock Returns out of Sample: Can Anything Beat the Historical Average? The Review of Financial Studies, 21, 1509-1531.

Clark, T. E., & West, K. D. (2007). Approximately Normal Tests for Equal Predictive Accuracy in Nested Models. Journal of Econometrics, 138, 291–311. j.jeconom.2006.05.023

Devpura, N., & Narayan, P.K. (2020). Hourly Oil Price Volatility: The role of COVID-19, Energy Research Letters, 1, 13683.

Elleby, C., Domínguez, I. P., Adenauer, M., & Genovese, G. (2020). Impacts of the COVID-19 Pandemic on the Global Agricultural Markets. Environmental and Resource Economics, 76, 1067-1079.

Feng, G. F., Yang, H. C., Gong, Q., & Chang, C. P. (2021). What is the Exchange Rate Volatility Response to COVID-19 and Government Interventions? Economic Analysis and Policy, 69, 705-719.

Ferraro, D., Rogoff, K., & Rossi, B. (2015). Can Oil Prices Forecast Exchange Rates? An Empirical Analysis of the Relationship Between Commodity Prices and Exchange Rates. Journal of International Money and Finance, 54, 116-141.

Iyke, B.N. (2020). The Disease Outbreak Channel of Exchange Rate Return Predictability: Evidence from COVID-19. Emerging Markets Finance and Trade, 56, 2277-2297.

Iyke, B. N., & Ho, S. Y. (2021a). Exchange Rate Exposure in the South African Stock Market before and during the COVID-19 Pandemic. Finance Research Letters, 102000.

Iyke, B. N., & Ho, S. Y. (2021b). Investor Attention on COVID-19 and African Stock Returns. MethodsX, 8, 101195.

Liu, L., Wang, E.Z., & Lee, C.C. (2020). Impact of the COVID-19 pandemic on the crude oil and Stock Markets in the US: A Time-Varying Analysis. Energy Research Letters, 1, 13154.

Meese, R. A., & Rogoff, K. (1983). Empirical Exchange Rate Models of the Seventies: Do They Fit out of Sample? Journal of International Economics, 14, 3-24.

Moosa, I. (2013). Why Is It so Difficult to Outperform the Random Walk in Exchange Rate Forecasting? Applied Economics, 45, 3340-3346.

Moosa, I., & Burns, K. (2014). The Unbeatable Random Walk in Exchange Rate Forecasting: Reality or Myth? Journal of Macroeconomics, 40, 69-81.

Narayan, P. K. (2020a). Has COVID-19 Changed Exchange Rate Resistance to Shocks? Asian Economics Letters, 1, 17389.

Narayan, P. K. (2020b). Did Bubble Activity Intensify During COVID-19? Asian Economics Letters, 1.

Narayan, P. K. (2020c). Oil Price News and COVID-19—Is There Any Connection? Energy Research Letters, 1, 13176.

Narayan, P.K., Devpura, N., & Wang, H. (2020a). Japanese Currency and Stock Market—What Happened during the COVID-19 Pandemic? Economic Analysis and Policy, 68, 191-198.

Narayan, P. K. & Gupta, R. (2015). Has Oil Price Predicted Stock Returns for Over a Century? Energy Economics, 48, 18–23.

Narayan, P.K., Sharma, S.S., Phan, D.H.B. & Liu, G. (2020b). Predicting Exchange Rate Returns. Emerging Markets Review, 42, 100668. Doi:

Nusair, S.A., & Olson, D. (2021). Asymmetric Oil Price and Asian Economies: A Nonlinear ARDL Approach. Energy, 219, 119594. Doi:

Olasehinde-Williams, G., Olanipekun, I., & Özkan, O. (2021). Foreign Exchange Market Response to Pandemic-Induced Fear: Evidence from (A) Symmetric Wild Bootstrap Likelihood Ratio Approach. The Journal of International Trade & Economic Development, 1-16.

Phan, D. H. B., Sharma, S. S., & Narayan, P. K. (2015). Stock Return Forecasting: Some New Evidence. International Review of Financial Analysis, 40, 38-51.

Phan, D. H. B., Sharma, S.S., and Narayan, P.K. (2015). Stock return forecasting: Some new evidence. International Review of Financial Analysis, 40, 38–51.

Prabheesh, KP, R Padhan, & B Garg (2020). COVID-19 and the Oil Price–Stock Market Nexus:

Evidence from Net Oil-Importing Countries. Energy Research Letters, 1, 10.46557/001c.13745.

Rapach, D., & Zhou, G. (2013). Forecasting Stock Returns. In Handbook of economic forecasting, 2, 328-383.

Rasiah, R. A. J. A. H., & Yap, X. S. (2015). Innovation Performance of the Malaysian Economy. The Global Innovation Index, 139.

Salisu, A.A., Adekunle, W., Alimi, W.A. & Emmanuel, Z. (2019a). Predicting Exchange Rate with Commodity Prices: New Evidence from Westerlund and Narayan (2015) Estimator with Structural Breaks and Asymmetries. Resources Policy, 62, 33–56.

Salisu, A.A., Raheem, I.D., & Ndako, U.B. (2019b). A Sectoral Analysis of Asymmetric Nexus Between Oil Price and Stock Returns. International Review of Economics & Finance, 61, 241-259.

Salisu, A.A., Swaray, R., & Oloko, T.F. (2019c). Improving the Predictability of the Oil–US Stock Nexus: The Role of Macroeconomic Variables. Economic Modelling 76, 1531-171.

Salisu, A. A., Cuñado, J., Isah, K., & Gupta, R. (2020). Oil Price and Exchange Rate Behaviour of the BRICS. Emerging Markets Finance and Trade, 1-10.

Salisu, A. A., & Sikiru, A. A. (2020). Pandemics and the Asia-Pacific Islamic Stocks. Asian Economics Letters, 1.

Salisu, A.A. & Adediran, I.A., (2020) Uncertainty due to infectious diseases and energy market volatility, Energy Research Letters, 1, 14185.

Salisu, A. A. & Vo, X.V. (2020). Predicting Stock Returns in the Presence of COVID-19: The Role Of Health News. International Review of Financial Analysis, 71, 101546.

Salisu, A.A., Lasisi, L., & Olaniran, A. (2021). Do Epidemics And Pandemics Have Predictive Content for Exchange Rate Movements? Evidence for Asian Economies. Asian Economics Letters. Doi:

Shangle, A. & Solaymani, S. (2020). Responses of monetary policies to oil price changes in Malaysia. Energy, 200, 117553. Doi:

Sharma, S.S., Phan, D.H.B., & Iyke, B. (2019). Do Oil Prices Predict Indonesian Macroeconomy? Economic Modelling, 82, 2-12.

Sharma, S. S. (2020). A Note on the Asian Market Volatility during the COVID-19 Pandemic. Asian Economics Letters, 1.

Susilawati, S., Falefi, R., & Purwoko, A. (2020). Impact of COVID-19’s Pandemic on the Economy of Indonesia. Budapest International Research and Critics Institute (BIRCI-Journal): Humanities and Social Sciences, 3, 1147-1156.

Westerlund, J., & Narayan, P. K. (2012). Does the Choice of Estimator Matter when Forecasting Returns? Journal of Banking & Finance, 36, 2632–2640.

Westerlund, J., & Narayan, P. K. (2015). Testing for Predictability in Conditionally Heteroskedastic Stock Returns. Journal of Financial Econometrics, 13, 342–375.

How to Cite
Salisu, A., & Sikiru, A. (2021). PALM OIL PRICE–EXCHANGE RATE NEXUS IN INDONESIA AND MALAYSIA. Buletin Ekonomi Moneter Dan Perbankan, 24(2), 169 - 180.