Indonesia's rupiah was the weakest currency in Asia on Tuesday as regionals trod water, wary of a volatile Japanese yen and a tentative recovery in stock markets.
The rupiah hit 9,080 a dollar, its weakest in 14 months and a fall of nearly nine percent since January on political uncertainty surrounding elections and as investors exited Asia.
Stock markets around the region, from Japan to Thailand, recovered modestly after their steep falls since last week.
The Korean won was little changed towards the close of Asian trading after spending the day in a 1,181-1,186 per dollar range while the Taiwan dollar first fell and then rallied to end local trade steady at 33.68.
The Thai baht rallied to Monday's close around 40.80 and the Singapore dollar was little changed, up by 0.2 percent at 1.7230/40.
As major currency markets grappled with recent bombings in the Middle East, the improving outlook for the US economy and robust Japanese GDP data, the yen was erratic.
"Asia seems to be seeing some respite today," said James Malcolm of J.P. Morgan, adding investors were still keeping to the sidelines and currencies were led by intra-day positions.
Bhanu Baweja of UBS said he would steer clear of bets on dollar/Asia since he believed investors were still reducing risk.
"Risk aversion is very high. In terms of financial flows, it means the leveraged community is getting out of Asia," he said.
Until credit markets and the US Treasuries stabilise, one could not be sure the turbulence in Asian currency markets was over, Baweja added.
The rupiah extended its three-week slide and traders reported the authorities had to step in with dollars.
The Indonesian stock market appeared to have stabilised after an 18 percent fall since the last week of April.
However, data on Tuesday showed foreign investment approvals in Indonesia had fallen to $2.3 billion from January-April, down a billion dollars from the same period a year ago.
"The main catalyst for the rupiah's fall is not so much the politics or even the Asian stuff, it is more just the global unwind of the carry trade," said J.P. Morgan's Malcolm.
Indonesia's parliamentary elections in April resulted in no single party securing a majority and the political suspense continues until July when presidential elections are to be held.
That has given foreigners a reason to sell rupiah assets, exiting Asia's most popular carry trade - a trade in which investors borrow low-yielding currencies and invest in countries with higher interest rates.
"It (the carry trade) seems to be unravelling at a faster speed now," Malcolm said, adding investors were keen to reduce their exposure to Indonesia.
"The politics is not helpful but I don't think it is particularly detrimental at the moment.
There is not a lot of political risk priced into the market," Malcolm said.
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