Asian currencies unwound early gains made on a record US trade deficit as the market returned to worries about record oil prices posing a threat to inflation and growth in the region.
Asian currencies were pulled higher at the open as the dollar hit a one-week low against the yen and a four-week low against the euro but they did not challenge significant levels.
As trade quietened and the yen pulled off its highs, the gains unwound. Only the South Korean won and Singapore dollar, which are closely correlated with the yen, ended with gains of any note while most other currencies finished flat.
While the yen was up about 1 percent from Friday's Asian close, the won was up about 0.25 percent. It ran out of steam before 1,150 per dollar, a level where South Korean authorities were thought to have capped its gains last month.
The Singapore dollar was up about 0.2 percent but trading in the soft end of range it held last week.
Oil hit a record of $46.91 a barrel in Asian trading of New York Mercantile Exchange futures, triggering falls in many regional stock markets. Tokyo's Nikkei average fell to a three-month low, and is down 5.6 percent since the end of July.
The oil price not only carries a risk of inflation, but could also hit global demand for Asia's exports. With Asia's technology sector also worrisome, the market is wary of aggressively buying the region's currencies just now.
Goldman Sachs economist Enoch Fung calculated that the terms of trade for non-Japan Asia fell 0.4 percent last week, repeating the previous week's loss.
The mix of risks from the record oil prices has created something of a policy dilemma for central banks worried about heading off inflation from rising oil prices but not wanting to stymie domestic growth.
"I think central banks are basically assessing the situation right now, to decide if they should be focusing on growth or inflation - and whether interest rates or fiscal policy is the right tool to deal with this supply-side issue," DBS Bank market strategist Philip Wee said.
South Korea unexpectedly cut rates last week, putting the need to revive domestic activity ahead of countering inflation.
In contrast, Bank of Thailand Governor Pridiyathorn Devakula indicated at the weekend that Thai rates could rise after the central bank's August 25 policy meeting, as expected by analysts and largely factored into the currency.
"There will be no surprise in the next meeting... If we decide to do something, we will send a signal to the markets first to minimise any impact," Pridiyathorn said on Saturday.
The baht could not sustain early gains past 41.50 per dollar and eased back towards last week's one-year lows. Analysts say the baht is likely to weaken further.
"Overall, growth moderation, Thailand's high sensitivity to oil prices and weaker external surplus should weigh on baht over the next few months," United Overseas Bank economists said in a report. "We could see a break of 41.75, guiding the currency towards 42.00," they said. The baht last traded at 42 per dollar in August 2003.
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