Asian currencies lost ground on Friday as investors tried to flee risk amid turbulence in credit and stock markets, with the high-yielding Indonesian rupiah and Philippine peso taking the brunt of selling. The rupiah dipped as low as 9,250 per dollar, down nearly 1.5 percent from late Asia trade on Thursday to hit its weakest level since early-March.
In an apparent bid to soothe market concerns, deputy central bank governor Hartadi Sarwono told Reuters that a weaker rupiah would be temporary and would not affect monetary policy. The comments helped stabilise investor sentiment and traders said some state banks sold dollars to help support the rupiah, but the downward pressure on the Indonesian currency persisted.
"People are still willing to buy the dollar, but the market is not panicking yet," said a trader in Jakarta. The rupiah has lost about 2.6 percent versus the dollar so far this year, making it the worst performing currency in Asia. The rupiah gained 9.4 percent last year, trailing only behind the Thai baht, which jumped 14 percent.
The Philippine peso, another high-yielder in the region, retreated as far as 45.88 per dollar, down 1.2 percent from Thursday's close. The rupiah and peso have risen off the back of carry trades, in which investors borrow low-yielding currencies - typically yen - to fund investments in currencies and assets with higher returns. Some of those positions were being unwound on Friday.
The Malaysian ringgit also took a hit, falling about 1 percent to 3.47 per dollar, a one-month low. MSCI's index of Asia Pacific stocks excluding Japan plunged 3.8 percent, tracking a hefty fall on Wall Street on Thursday amid signs of further weakness in the housing market and deteriorating conditions for corporate buyouts.
The Chicago Board of Options Exchange's volatility index, a key gauge for measuring investor anxiety, shot to its highest level in over 13 months on Thursday. Concerns about problems in the US housing sector are likely to cast a pall over most Asian currencies, particularly high-yielding units, in the near term, analysts say.
"The continued deterioration in global risk appetite led by concerns over the US subprime mortgage market is making its negative presence increasingly felt in Asia FX," Claudio Piron, currency strategist at J.P. Morgan, said in a research note.
"High risk currencies such as peso, rupiah, ringgit and rupee are bearing the brunt of the selling interest," he said. By contrast, the Japanese yen hit a three-month high against the dollar and a six-week high versus the euro, reflecting the wave of unwinding in carry trades.
Elsewhere, the South Korean won hit a three-week low of 922.30 per dollar as the authorities were suspected of intervening for a third straight day in a bid to push the won lower, exaggerating a slide ignited by higher risk aversion.
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