Donald Trump’s election victory is expected to increase volatility in global currency markets, particularly in Malaysia. Bank Negara Malaysia (BNM) has warned of potential short-term fluctuations in the ringgit, which is already weakened. Malaysian bonds also face risks of outflows, with a net outflow of 11.2 billion ringgit in October, driven by rising US Treasury yields and a stronger dollar.
The ringgit has fallen to its lowest point since August, and the 10-year bond yield is at a six-month high. There is a correlation between bond yields and the ringgit, suggesting further weakness could lead to higher yields and more outflows. In addition, weaker Chinese stimulus measures contributed to bond outflows from Malaysian-linked markets, though its strong economic fundamentals offer support.
BNM’s decision to hold its Overnight Policy Rate at 3.00% reflects confidence in Malaysia’s stable inflation and growth outlook. However, neighboring countries’ rate cuts could attract capital away. While global challenges remain, Malaysia’s resilient economy and BNM’s potential use of non-rate tools should help mitigate risks to the ringgit, thereby easing concerns of large US-based investors.
