The Indonesian rupiah gave up almost all of its gains on Thursday after hitting a two-week high of 9,935 per dollar late on Wednesday as importers took advantage of the currency's strength to buy US dollars.
The Taiwan dollar gained for the third straight day, rising to 33.6 per dollar, as foreign investors returned to its stock market. Foreigners have been net buyers of stocks for the last nine days after ending October as net sellers.
Other Asian currencies were steady ahead of US trade data that some analysts say could show a record deficit and reverse the dollar's two-month rally against major currencies.
The rupiah had risen almost 2 percent on Wednesday after Indonesian markets opened following a week-long holiday as investors bought the currency to invest in high-yielding central bank certificates that were auctioned during the day.
Bank Indonesia sold 1-month certificates (SBIs) at a yield of 12.25 percent on Wednesday, compared with 11 percent at the previous auction, attracting many foreign investors eager to invest in Asia's highest-yielding short-term government debt.
The currency was quoted at 10,010/10,020 per dollar after trading as high as 9,945 in early business.
"Many importers who need dollars are entering the market right now," said Branko Windoe, head of treasury at Rabobank International Indonesia in Jakarta.
"They haven't seen the rupiah below the 10,000 level for almost three months now."
The rupiah has rebounded since hitting a four-year low of 11,750 per dollar on August 30 as the central bank has raised interest rates by almost 4 percentage points since the end of June to prop up the currency and dampen inflation.
Swiss bank UBS said in a report that rates could go up another 175 basis points to 14 percent.
Economists in a Reuters poll forecast a record $61.0 billion deficit. Some analysts said a higher deficit could reverse the dollar's two-month rally against the yen and euro.
"The US trade report tonight is expected to rise to a new record, hardly the stuff to inspire confidence in the US dollar," said Greg Gibbs, a strategist at Royal Bank of Canada.
"The low participation by central banks in US Treasuries is also not supportive of the US dollar. A rise in gold prices and firmer commodity currencies is also an indication that the US dollar is not having it all its own way," Gibbs said in a report.
French investment bank Calyon said on Thursday that Asian currencies, other than the Hong Kong dollar, could appreciate by an average 6-7 percent against the US dollar in 2006 as structural imbalances in the United States return to the fore.
Asian currencies are likely to benefit also from rising regional interest rates as central banks fight inflation and from a likely appreciation in the Chinese currency, Calyon analysts Sebastien Barbe and Daragh Maher said in a report.