The Indonesian rupiah fell to a three-week trough and the Malaysian ringgit shed a quarter of a percent on Wednesday as worries over the fallout from US subprime crisis hit the dollar but also led investors to unload risky assets.
The Thai baht also fell a quarter of a percent to a one-week low after the Bank of Thailand surprised some players with a cut in policy rates and said the move aimed to ease upward pressure on the baht and help exporters.
The rupiah hit 9,144 per dollar at its weakest, shedding 0.7 percent from the previous day's closing levels. The Singapore dollar was relatively less affected, and stayed around 1.5175 per US dollar. The ringgit fell to 3.4510 per dollar, a one-week low.
The US dollar's trade-weighted index hit a 12-year low on news of continuing trouble at two Bear Stearns hedge funds that had bet on subprime mortgages. The dollar held near record lows against the euro and hit 26-year lows against sterling despite expectation Fed Chairman Ben Bernanke will stress the Fed's focus on inflation risks in his testimony to Congress later on Wednesday.
Yet in the longer-run, Asia was more likely to suffer from a rise in risk aversion than the US market, Westpac Bank strategist Sean Callow said. He said that whereas Asian investors had such huge holdings of US bonds that the region's central banks and private investors would be loath to see US markets tumble, US investors were more choosy about buying Asian stocks.
"It reinforces the probability that should risk aversion rise globally, even if the catalyst is in US markets such as a subprime blow-up, the likely response is a rise in dollar/Asia," Callow said. "Asian investors would have limited incentive to sell their huge holdings of US bonds but US investors would exit Asian equities in scale," he said in a note to clients.
Eight out of 11 analysts polled by Reuters forecast the Bank of Thailand would keep its one-day repurchase rate steady at 3.5 percent, so Wednesday's 25 basis points cut in the one-day repurchase rate surprised markets. At 0800 GMT, the baht was quoted at 33.43/48 per dollar in onshore deals, further off last week's 10-year high.
Analysts said the rate cut was a right move, because the baht's 8 percent rise this year had already tightened policy. The Thai cabinet is also expected to announce some measures next Tuesday, to contain the baht and relieve exporters suffering a loss of exchange rate competitiveness.
ING economist Tim Condon said there would be further rate cuts in Thailand and that the country's economic fundamentals, including inflation below 2 percent and weak consumer and business confidences argued for a lower policy rates.
"We also view the rate cuts as part of the government's exit strategy from remaining capital controls," he said, adding that it would introduce more two-way risk into the baht exchange rate.
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