Asian currencies gave up some ground on Thursday after the dollar was boosted by strong US growth data that pointed to more increases in US interest rates, offsetting an improving economic outlook for parts of Asia.
The European Central Bank (ECB) is expected to raise its key rate by a quarter point to 2.25 percent later in the day.
The ECB rate outlook pushed the Japanese yen towards a record low against the euro as it also edged closer to a two-year low against the dollar, putting a lid on other Asian currencies.
Royal Bank of Scotland currency strategist Craig Chan said interest rates were driving the currency markets as investors looked for higher yields. That implied that the US dollar could continue to strengthen in Asia in the coming months.
Within Asia, Chan recommended buying Indonesian rupiah against the Thai baht because of comparatively higher yields offered by Indonesian short-term assets.
Indonesia reported a modest acceleration in exports and a trade surplus for October while Thailand's October exports growth slowed and the trade account reverted to a deficit, he said. Indonesia said on Thursday that November inflation was a higher-than-expected 18.38 percent, up from 17.89 percent in October, bolstering the chances for a further interest rate increase.
Indonesian short-term interest rates are the highest in Asia.
Chan also suggested selling the Singapore dollar to buy the Philippine peso.
"Yield is still the key determinant for currencies in Asia," he said.
The Philippine peso is Asia's best-performing currency this year, having gained 3.9 percent since the start of January.
Expectations of rising yields helped push up the Malaysian ringgit to a one-month high of 3.7750 per dollar in early trading, reversing a four-month slide.
On Wednesday, the Malaysian central bank raised its overnight policy rate by 30 basis points to 3.0 percent, the first increase in seven years, although it said monetary policy remained accommodative towards fostering growth.
But the dollar's subsequent climb in Asia led to a mild sell-off in the Malaysian currency by late trading to 3.7793 per dollar.
Ringgit non-deliverable forward contracts, used by investors to speculate on the currency's future value, priced the currency at 3.7745 per dollar in a month and 3.7495 in six months, projecting a rise of 0.8 percent in the next half-year.
Before the rates decision, Bank Negara said the economy had expanded by a stronger-than-expected 5.3 percent in the third quarter from a year earlier, accelerating from 4.4 percent growth in the second quarter.
Daniel Hui, an economist at J.P. Morgan Securities, now expects Bank Negara to raise the overnight rate by 25 basis points in both the first and second quarters of 2006, taking the rate to 3.5 percent by June.
A ringgit dealer in Kuala Lumpur said higher yields might attract investors to Malaysian bonds. "But because of dollar strength, I don't think the ringgit will appreciate much longer."
Until Wednesday's rate rise, Malaysia was the only major south-east Asian country that had not raised interest rates this year.
That left Malaysian short-term rates among the lowest in Asia at a time when the US has been steadily increasing rates.