Asian currencies fell on Friday amid a broad sell-off of riskier assets triggered by spreading credit market woes, prompting some central banks to sell dollars to stem the slide. Traders said they suspected central banks in Indonesia, the Philippines and Malaysia had sold the dollar to support local currencies that bore the brunt of the selling pressure.
That helped the high-yielding Indonesia rupiah stabilise near 9,340 per dollar after it fell as far as 9,365 in early trade, which was the weakest level since June 2006. The peso, another high-yielder in Asia, slipped as far as 45.75 per dollar, down 0.86 percent from Thursday's close.
"At the 45.75 level we think they came in to support the peso," said a trader in Manila. Ben Simpfendorfer, a currency strategist at Royal Bank of Scotland, said the high-yielding rupiah and peso would continue to struggle as investors sold risky assets to limit losses.
"There is a lot of demand for liquidity, given the fact that these underlying assets are not worth much any more. It's a contagious effect at work," he said. Asian stocks slumped, with MSCI's measure of Asia Pacific stocks excluding Japan fell almost 3.5 percent to a 1-month low. The South Korean won dropped as far as 931.8 per dollar down nearly one percent to its weakest in two months.
The Singapore dollar hit a one-week low of 1.5240 per US dollar, ignoring data that showed the economy raced ahead in the second quarter, expanding at a annualised rate of 14.4 percent, its fastest in two years. Meanwhile, the Japanese yen extended its gains against the dollar and euro as investors unwound risky carry trades funded by low-yielding currencies such as the yen.
Some policymakers played down the latest market rout with Indonesian Vice President Jusuf Kalla telling reporters that recent rupiah weakness was part of a normal currency swings and was good for the country's exports.
Magnus Prim, chief Asia currency strategist at SEB, said the central banks' move to sell dollars was largely symbolic, because most Asian authorities still face pressures to limit long-term currency appreciation.
"They have stated that they only intervene to decrease volatility, and many people have tossed questions marks to that since it has been one-sided up until now," he said.
"Now they are on the other side just to prove ... that they are doing it on both sides." Central banks across Asia also moved to calm market nerves by either pumping cash into money markets or vowing to do so if such a need arises. The Bank of Japan added more money than usual into the banking system, albeit on a much smaller scale than the European Central Bank's $131 billion injection on Thursday. Authorities in South Korea, Singapore and Hong Kong said they were ready to act to maintain stability in the local financial markets.
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