Speculation about further US rate rises and a drop in the Japanese yen of more than one percent pulled other Asian currencies down on Friday, although traders sensed some resilience in the regional markets.
The dollar was boosted by rumours Federal Reserve officials had met with bond market participants on Wednesday, raising speculation the Fed may raise rates by half a percentage point when it meets next week.
In addition, the yen was hurt by the furore over Bank of Japan Governor Toshihiro Fukui's personal investments and concern that this could lead to his resignation.
Yet dealers and analysts pointed to stock markets and offshore forwards to show that this Asian currency selling was shallower than that seen in the sharp drop from early May to mid-June.
Jan Lambregts, head of Asia-Pacific research at Rabobank, said the Nikkei average's early drop and subsequent recovery to above the 15,000 mark on Friday was one such signal.
"This to me suggests there is some resilience here and I can see a bottom is being found here," he said. "The danger has not passed but I am not pessimistic." But Asian stock markets were weaker and the currencies all fell between a quarter and half a percent.
The Indonesian rupiah fell to a one-week low of about 9,390 per dollar. The Singapore dollar shed more than a quarter of a percent to 1.5950 per US dollar, giving back more than half the gains it had made since hitting a two-month low of 1.6015 on Monday.
The baht's quarter percent fall was due in part to domestic political concerns, with Thai prosecutors looking into whether to disband Prime Minister Thaksin Shinawatra's party for breaking election rules in April's annulled polls.
"There is still more of a bull-dollar trend right now," said Odie Lee, a trader at Bayerische Hypo und Vereinsbank in Singapore. "It looks like it is more of a dollar/yen story."
"But the interest in emerging market currencies is still there because if you look at the NDFs against implied onshore rates, they are not so much higher," Lee said.
Lee said non-deliverable forwards had shown the regionals to be weaker in the offshore market than onshore in May during a heavy bout of selling of emerging market stocks and currencies.
For instance, in mid-May the Korean won NDF market had priced the three-month won at about 944 per dollar, about two won weaker than the onshore three-month forwards.
On Friday, both offshore and onshore won forwards showed the currency trading at about 956 won per dollar in three months. Spot won was quoted at 959 per dollar.
"This is normalising, and it means that interest in the Asian currencies is still there," Lee said, referring to the convergence in the onshore and offshore forward rates.
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