Most emerging Asian currencies slid on Tuesday as comments from several Federal Reserve officials revived expectations that the US central bank could still raise interest rates this year. The comments helped keep the US dollar near a two-week high, though investors remained cautious after the Fed's decision to leave rates unchanged last week fuelled concerns about US and global economic growth.
The Asian Development Bank cut 2015 and 2016 growth forecasts for developing Asia earlier on Tuesday as China's slowing economy weighs on the rest of the region.
The ringgit hit a one-week low as the New York Times reported a US federal grand jury is examining allegations of corruption involving Malaysian Prime Minister Najib Razak and individuals close to him.
Indonesia's rupiah hit a fresh 17-year trough on month-end corporate dollar demand, while Thailand's baht slumped on importers' dollar demand.
Atlanta Fed President Dennis Lockhart on Monday said last week's decision to leave rates unchanged was largely a "risk management" exercise to be sure recent market volatility would not become a drag on the US economy. He said he still expects the Fed to hike rates later this year.
The US dollar hovered around its highest since September 10 against a basket of six major currencies.
"We fear the broad dollar narrative may be splintering on a structural basis post-FOMC, given that the Fed was 'unnerved' enough by external developments to delay its lift-off in September," said Emmanuel Ng, a foreign exchange strategist with OCBC Bank in a note, referring to the Federal Open Market Committee.
But Asian currencies were likely to remain trapped by uncertainties over the dollar's direction, Ng added.
The ringgit lost as much as 0.7 percent to 4.2920 per dollar, its weakest since September 15.
The New York Times said on Monday that the inquiry, run by a unit of the Justice Department that probes international corruption, is centred on US properties bought in recent years by Najib's stepson and properties relating to "a close family friend".
Calls for comment from Najib's office went unanswered.
Investors had already souring on Malaysia as questions swirl over indebted state fund 1Malaysia Development Berhad, whose advisory board is chaired by Najib.
"We think elevated political noise fuels steady USD/MYR buying that intensifies when oil prices fall and when volatility spikes," said Tim Condon, head of research for Asia at ING Bank in a note.
"China hard-landing worries and US monetary policy uncertainty are the easiest-to-identify sources of volatility spikes."
The baht slid on dollar demand from importers for month-end payments as the greenback stayed higher than 35.50 to the baht.
Investors stayed concerned over sustained capital outflows even though local stocks and bonds saw some foreign demand.
Foreign investors sold a combined net 5.0 billion baht ($139.2 million) worth of Thai stocks in the first 21 days of the month, while dumping a total 19.1 billion baht in local bonds.
The rupiah eased 0.3 percent to 14,500 per dollar, its weakest since July 1998.
The Indonesian currency came under further pressure as foreign investors sold the currency after cutting stock holdings.
The central bank was spotted intervening around the session low through state-run banks to support the second-worst performing Asian currency so far this year, traders said.
Bank Indonesia governor said he was not worried if the country's foreign exchange reserves fell below $100 billion.
The central bank is seen trying to defend the psychologically important 14,500 level, but is unlikely to succeed, a Jakarta-based trader said. "On the Fed's uncertainty, it may try 14,700-14,800," said the trader.
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