Several Asian central banks were suspected of intervening on Tuesday to hold down their currencies, which had risen initially because of a growing view that US interest rate increases could be near an end.
The South Korean won rose as high as 951.8 per dollar and then retreated on worries about possible central bank intervention. Data on Tuesday showing currency reserves had increased in the first half of April underpinned those concerns.
The Thai baht was quoted briefly at a six-year high of 37.85 per dollar but its gains were pared after some dealers spoke of possible dollar buying by the Bank of Thailand on Monday and Tuesday. Verbal intervention by central bank authorities last week also made traders wary.
The Singapore dollar extended recent gains to 1.5999 per US dollar, its strongest level in nearly eight years, before pulling back after dollar purchases by local banks, which dealers suspected were on behalf of the Monetary Authority of Singapore (MAS).
"To a degree the price move reflects broader dollar trends, but market participants also appear to be testing out how low they can take US dollar/Sing dollar before the MAS reacts aggressively intervention-wise," Lim Su Sian, an economist at the Bank of Tokyo-Mitsubishi, said in a note.
However, Lim said the MAS seemed to be merely providing some defence for the US dollar at the 1.6000 level rather than aggressively attempting to reverse the market's direction.
Last Tuesday, the MAS stuck to a policy of gradual currency appreciation, surprising markets who were looking for it to allow a bigger rise in the trade-weighted Singapore dollar. The MAS conducts monetary policy by steering the local currency within an undisclosed band based on a trade-weighted basket of currencies.
Some analysts said the Sing dollar's rise since the decision suggested the current policy permitted it to have a wider band and a steeper appreciation than most believed.
Apart from the won, which retained some of its gains, most of the Asian currencies were either down or barely changed on the day, even though the US dollar stayed soft against the yen and euro.
Some of the early gains had come from expectations of an end to US rate rises. Analysts said minutes from the Fed's March meeting and US March housing data due later on Tuesday would be watched for further clues on rates.
Traders said there was still some interest in buying the Asian currencies ahead of Chinese President Hu Jintao's visit to Washington this week, when he will come under pressure to allow the yuan to appreciate more rapidly.
"It keeps bubbling in the background and is acting as a cap on dollar/Asia, but expectations are relatively low that there will be a huge announcement from Hu," said Westpac senior currency strategist Sean Callow.
But Hu was unlikely to say anything that would dash all expectations of yuan appreciation, particularly while in the United States, where he would be facing heavy pressure to do something to tackle global trade imbalances, Callow said.