The Indonesian rupiah slipped to a 9 1/2-month low on Tuesday, leading declines in Asian currencies, after an earthquake off Sumatra sparked a sell-off in local stocks and drove more investors away to US dollar assets. The rupiah lost 0.7 percent to 9,505 per dollar, its weakest since June 4. The currency is Asia's worst performer this year after the Japanese yen, having lost 2.1 percent since the end of 2004. The yen has lost 4.3 percent this year.
Most other Asian currencies extended two weeks of declines. The Singapore dollar was an exception, trading little changed at S$1.65 per dollar.
The earthquake occurred near a small island off Indonesia's Sumatra and is feared to have killed about 1,000 people. It came as investors were already pulling out of Indonesian and other emerging market stock markets because of expectations the United States would raise interest rate more aggressively.
"Despite Asia's strong current account, we are not yet prepared to re-sell dollar against Asia," said Irene Cheung, head of Asian currency strategy at ABN Amro Bank in Singapore. "Keep long US dollar this week."
Analysts say the dollar could get further support from a strong US jobs report due later this week which may add to the expectations for a faster pace of raising US rates.
The Indonesian rupiah was particularly vulnerable because higher US rates make the riskier Indonesian assets less attractive to investors unless Jakarta raises interest rates. The benchmark Jakarta stock index fell as much 4 percent.
"It's a double whammy for the rupiah," said Christy Tan, a currency analyst at 4CAST Ltd in Singapore. "While the underlying tone is mainly bullish for the dollar against Asia, the earthquake in Sumatra is an added negative for the rupiah."
The epicentre of the latest quake was close to that of the December 26 quake, although there were no signs of a tsunami up to nine hours after the quake.
Tan expects the Indonesian central bank to sell dollars to defend the local currency at about 9,500 per dollar.
The Indonesian central bank has had to intervene over the past two weeks after surging oil prices and a postponement of a $1 billion global bond sale hurt the country's balance of payments outlook.
The South Korean won weakened as much as a third of a percent to a five-week low of 1,020.4 per dollar after data on Tuesday showed a weaker-than-expected drop in factory output in February from January.
Foreign investors were net sellers of South Korean shares for the 19th consecutive day and of Taiwan stocks for the 12th straight session on Tuesday.
The Taiwan dollar weakened to a six-week low of 31.802 per dollar. The Thai baht lost a third of a percent to 39.29 per dollar, its weakest since January 6.
The Philippine peso, Asia's best performing currency this year, fell as much as 0.4 percent to a three-week low of 54.72 per dollar before recovering to close to 54.65 on hopes a special three-day session of the Senate starting Wednesday may pass a crucial bill to increase value-added tax revenues.
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