The Indonesian rupiah led Asian currencies higher on Friday as weaker-than-expected US growth data helped alleviate concerns about rising US interest rates and lifted regional stocks.
The Indonesian rupiah, which was pummelled in the past two weeks along with other emerging markets on worries about rising US rates, rose in thin trading to as high as 9,200 per dollar, almost 2 percent above late Asian trading on Thursday.
The Thai baht climbed to 38.16 per dollar, up more than half a percent from Thursday. The Singapore dollar and South Korean won rose as much as half a percent while the Taiwan dollar rose a third of a percent.
The Indian rupee recovered from a 5-1/2-month low hit on Thursday to trade as high as 45.78 per dollar as the key stock index jumped 3.6 percent. Analysts said markets are likely to stay illiquid and choppy until increasingly risk-averse investors have a clearer view about the outlook for US interest rates.
"The uncertainty is going to be around. The market is not sure about the Fed yet," said Philip Wee, currency strategist at DBS Bank in Singapore.
He said several insurance companies were sitting on cash and holding back investments till the uncertainty subsides.
Asia's economic fundamentals were strong and the longer-term trend of a weakening dollar remained intact, but trading volumes were likely to fall in coming weeks as dealers turn their attention to the soccer World Cup.
Traders said the thin trading had already turned some illiquid currency markets in Asia more volatile than usual.
Implied volatilities on many of the currencies remained high, another sign that investors were protecting themselves against risks and pricing in uncertainty.
One-month Korean won volatility hovered around 7.1 percent, near last week's highs of around 7.8 percent. The implied volatility on the one-month Singapore dollar was around 6 percent, near this week's two-year high.
The one-month implied volatility on the Indonesian rupiah was quoted at 16.5 percent on Friday.
The rupiah plunged to 9,430 per dollar on May 16, three days after hitting a 2-year high of 8,685, in a broad-based sell-off of emerging markets on worries that the US Federal Reserve would extend its two-year rate rising cycle.
Higher US rates make riskier emerging market assets less attractive to risk-averse investors.
"The dollar correction has not finished yet," said a currency trader in Jakarta, writing off the nearly 2 percent surge in the rupiah as a reflection of illiquid markets rather than any signs of improving sentiment towards emerging market currencies.
Foreign investors have been net sellers in South Korea for 13 straight sessions including Friday, and they have been net sellers in Taiwan for 11 sessions.
The repatriation of some of those funds is likely to keep the currencies pressured for a while despite an upturn in most of the regional stocks markets on Friday.
Benchmark indexes in Japan, South Korea and Singapore rose about 2 percent on Friday, while those in Hong Kong, Thailand and Malaysia gained about 1 percent, following gains in Wall Street the day before.
US first-quarter economic growth came in at an annualised rate of 5.3 percent, below expectations for a 5.7 percent level.
Some traders said the data meant that there were reduced chances of one more Fed rate increase, following 16 quarter-point rate increases over the past two years.
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