Asian currencies strengthened on Monday as the US dollar lost some of its bullishness on security and growth concerns, but the region's own worries and rising oil prices meant gains were limited.
The yen flirted with a break of 111 per dollar in morning trade, leading regional currencies stronger, and in late Asian trade was testing levels around 110.90.
Similarly, the Singapore dollar was hesitant before resistance at 1.7180 per dollar in morning trade, before a burst of activity saw it jump to near 1.7150 per dollar, its highest since July 22.
The Philippine peso rallied to its strongest since July 14 as it broke out of a 55.80 to 56.15 per dollar range that it had held since mid-July. A lull in dollar demand at the start of the month and talk of corporate inflows in recent days have boosted the peso, but traders said sentiment remained bearish on the currency.
The US dollar weakened after the US government warned of a threat that al Qaeda may attack key financial institutions, including the New York Stock Exchange and the World Bank.
The dollar was also softer after Friday's lower-than-expected second quarter GDP figure, after rallying through July on expectations of strengthening activity and higher US rate.
But those worries provided only limited opportunity for Asian currencies, many of which were recovering from multi-month lows hit last week. At the time, many Asian central banks were suspected of intervening to halt the losses.
"Fed policy aside, the second big theme for currency markets is the dependence of East Asian economies on oil," Standard Chartered Bank analysts said in a report. "This oil-induced pressure for weaker Asian currencies has led to a 180-degree shift in the intervention patterns of central banks."
The US security alert drove oil prices to near $44 a barrel, the highest in the 21 years oil futures have been traded on the New York Mercantile Exchange, and unsettled financial markets around the world.
South Korea's finance minister ordered officials to draw up measures to counter rising oil prices, which were cited as a factor in the 4.4 percent rise of the consumer price index in July from 12 months earlier. That was the largest rise since March 2003.Further, the weaker-than-expected second quarter US growth report raised concerns about prospect for Asia's export sectors. The security, growth and oil price worries saw stock markets in Japan, South Korea and Taiwan fall on Monday.
Still, foreigners were net buyers of stocks in Taiwan and South Korea, helping the Taiwan dollar and Korean won finish stronger. The won is the only Asian currency to have strengthened against the dollar since the end of 2003.
Thai markets were closed for a holiday. The baht, which fell to 11-month lows last week, posted small gains in offshore trade.
The Standard Chartered report said the baht had reached its weakest trade-weighted point since the Asian crisis. On previous occasions the baht had bounced off this low, which they said made long baht positions against the trade-weighted index attractive.
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