SINGAPORE -- The Indonesian and Malaysian currencies weakened sharply in Friday morning trading, as Donald Trump's shock election victory jolted U.S. interest rates.
With the prospect of a capital exodus looming over the Southeast Asian countries, the Indonesian rupiah approached 13,500 per dollar, down from the previous day's 13,100 level and the weakest point since June 27. The Malaysian ringgit, meanwhile, plunged to 4.298 per dollar, its lowest value since Jan. 26.
The yield on the 10-year U.S. Treasury note surged to a 10-month high in New York trading on Thursday. This reflected uncertainty over how Trump will finance his campaign pledges, including large infrastructure investments and massive tax cuts.
With the Federal Reserve's monetary policy holding down U.S. interest rates, massive amounts of money have flowed into the Indonesian and Malaysian bond markets. Long-term rates of around 7% made Indonesia an attractive destination for investors seeking medium-risk assets with stable interest income, alongside other Southeast Asian and Central European bonds, a Singapore hedge fund representative noted.
According to the Asian Development Bank, some 40% of Indonesian government bonds and 35% of Malaysian government bonds were held by overseas investors as of the end of September. This helped to prop up the countries' currencies.
But now that U.S. interest rates are starting to rise, overseas investors have begun unloading Asian bonds to adjust their positions. Long-term rates in Indonesia and Malaysia began to climb around Wednesday, and their currencies are showing weakness.
"The two countries' currencies, whose value relied on an inflow of capital into their bond markets, will come under downward pressure if Trump follows through on his pledged policies," said Hirofumi Suzuki, a Singapore-based economist at Japan's Sumitomo Mitsui Banking.