The Indonesian rupiah fell to a two-week low on Friday and traders said state banks were seen buying US dollars on behalf of local companies that were hedging against the increasing cost of imported fuel.
NYMEX crude oil futures touched a record high of $66.13 per barrel in Asian electronic trading on Friday, clouding the outlook for most Asian countries that are showing signs of recovering from an economic slump in the first half.
Oil has climbed over 50 percent this year. The concerns about oil checked gains in other regional currencies, leaving most of them little changed from late Asian trading on Thursday.
The rupiah weakened almost two-thirds of a percent to 9,835 per dollar during morning trade before recovering some ground to 9,810.
Indonesian state oil company Pertamina said it bought dollars through state-run banks to pay for imported fuel after the rupiah recovered. It said the dollar buying had stopped for now.
"With oil going so high, there's likely to be more demand for dollars," said Kuan Weng Chi, a currency strategist at 4Cast, adding the rupiah's next support level was 9,900.
"Pertamina is not the only company looking for dollars. There are a lot of other Indonesian companies buying."
The value of Pertamina's fuel purchases has soared this year on the back of rising demand and soaring oil prices. This has worsened Indonesia's balance of payments, fuelled inflation and hurt the rupiah.
The Indonesian currency, which hit a three-year low of 9,900 per dollar on July 5, has lost 5.3 percent this year, making it Asia's worst performing currency after the yen
J.P. Morgan Chase Bank said in a report that concerns over the inflation outlook were exacerbated by a plan by the authorities to continue to remove fuel subsidies over the next six months.
"Going forward, risks of further regulatory response should cap near-term dollar/rupiah upside, though the persistent balance of payments frailties and high oil prices remain rupiah negative," wrote Claudio Piron, a J.P. Morgan currency strategist.
A weaker-than-expected expansion in Japan's gross domestic product in the second quarter weighed on the yen, which also played a part in halting the rally in Asian currencies.
Analysts said the next move in local currencies would largely depend on the US trade balance data for June due at 1230 GMT. Swiss Bank UBS said in a report that a widening trade deficit could hurt the dollar further, extending this month's declines.
A Reuters poll showed the June trade gap probably widened to $57.3 billion from $55.35 billion in May, partly because of the surge in oil prices.
"The trade balance has bettered expectations in recent months, with the deteriorating trend showing some signs of moderation, although we see risks as skewed towards a larger than expected deficit today," Rabobank said in a note to clients.
The Philippine peso outperformed regional currencies in early trade, strengthening to 55.635 per dollar, its strongest level since July 22. But some traders said the central bank had intervened, capping the currency's gains.
"It looks like the central bank was buying dollar/peso at around 55.65 to replenish its dollar reserves," a Manila-based trader said.
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