The Indonesian rupiah slid more than 3 percent on Tuesday for the second straight day, leading a drop in Asian currencies as foreign investors pulled out of local stocks and bonds in a sign of decreasing risk appetite.
Even the Japanese yen was weaker after the US dollar rebounded strongly against the euro on Monday and after gold suffered its biggest daily percentage fall since 1993.
China's yuan was back on the weaker side of 8 per dollar after the central bank fixed the centre of its trading band for Tuesday at 8.0150 yuan. The yuan traded on the stronger side of 8 on Monday for the first time in more than 8 years.
Investors and traders in Jakarta, shocked by the rapid reversal in fortunes of Asia's best performing currency, said they expected the sell-off in the rupiah to slow once the currency touches 9,500 per dollar levels.
The rupiah has lost as much as 7.1 percent in just two days and traded as low as 9,420 per dollar on Tuesday, its lowest level in almost four months. Dollar sales by the central bank for the second day in a row failed to halt the slide.
"Foreign investors want to take out dollars after selling bonds. They want to go out as fast as they came in," said a Jakarta-based currency trader.
"The stock markets are also down. That's what's making the rupiah so volatile."
The Indonesian currency had struck a two-year high last week as foreign investors piled on to local government bonds which pay some of the highest yields in Asia, at more than 12 percent annually.
UBS currency strategist Bhanu Baweja said in a note the sell-off had been triggered by the market's reassessment of inflation, and worries that the growth and inflation mix was changing to the detriment of emerging markets.
Jakarta's benchmark stock index plunged as much as 6 percent on Tuesday after a similar drop on Monday.
Indonesia's economics minister said the rupiah's drop was temporary. Even with the losses over the past two days, the currency is up 5.9 percent this year.
Stock markets in the rest of the region also sustained losses for the second day with the South Korean stock index losing more than 2 percent and Japan's benchmark Nikkei 225 index shedding 2 percent.
Stock indexes in Taiwan, Singapore and Thailand lost more than 1 percent with a follow-through impact on the respective currencies.
The Singapore dollar lost as much as 1.1 percent to 1.5901 per dollar, its lowest in almost three weeks.
The Philippine peso fell to its lowest in almost four months and the Thai baht dropped to its lowest in a month.
Many traders said they would stay on the sidelines and avoid fresh positions to assess if the sell-off in currencies and stocks was a correction rather than a major reversal in emerging-market sentiment.
"I think the answer is somewhere in between," said a trader.
"I don't think this is as serious as a big flight of capital from emerging markets.
But valuations are stretched, the currencies have had a pretty good run, and therefore what started as a little bit of a meltdown in stocks last Thursday has led to a scramble," he said.