Asian currencies fell in holiday-thinned trading on Tuesday, with the Indonesian rupiah the worst hit, as US efforts to tighten fiscal policy boosted the US dollar and pushed the yen to near 2-month lows. The dollar's gains pushed it to three-month highs versus the euro and above 105 yen. It was supported by US proposals to trim the budget deficit just days after Fed Chairman Alan Greenspan said market forces and a more austere US fiscal policy should stabilise and perhaps cut the record US trade gap.
Trading volumes in Asia were low, with South Korea and Taiwan already closed for Lunar New Year holidays and other countries in the region set to close for most of the week.
The Thai baht, rupiah, Singapore dollar and Philippine peso fell over half a percent each.
The Thai baht fell from overnight levels near 38.12 per dollar, its highest since May 2000. It had risen after an election victory for Prime Minister Thaksin Shinawatra.
The Philippine peso fell from Monday's 54.52, its highest in over a year, with fears of central bank intervention and the dollar's rally overshadowing bullishness over fiscal reforms and investment flows into the country's mining industry.
"Over the past couple of days, we have seen some broad dollar strength, driven by an unwinding of dollar shorts," said Jimmy Koh, head of markets research at United Overseas Bank.
Deutsche Bank's currency strategist James Malcolm said the rupiah's relative under-performance versus the peso reflected changing foreign sentiment and the balance of payments differences between the two emerging Asia high yielders.
"Foreign interest in Indonesia is waning. And people are looking at the Philippines with rosy glasses," he said.
Foreign investors probably found value in the Philippines now after seeing some tax reforms and improvement in the fiscal situation, he said.
Meanwhile, the balance of payments position deteriorated in Indonesia while staying nearly balanced in the Philippines, he said. The peso has become Asia's top performer this year, boosted by the fiscal reforms and portfolio investment inflows.
Elsewhere, markets scaled back their expectations for a revaluation of the Chinese yuan. Their expectations were dashed after Chinese officials speaking on the sidelines of the Group of Seven nations' meeting at the weekend said they were in no hurry to revalue the tightly managed currency.
Yuan non-deliverable forwards moved to price in a lower premium on the currency. One-year NDFs showed an expected 4 percent yuan appreciation, down from Friday's 4.75 percent and levels above 5 percent late last month.