The South Korean won rallied on Wednesday on a heavy bout of dollar sales by exporters, reversing some of the losses sustained in the past two weeks, ahead of a Bank of Korea policy meeting. A Reuters poll showed markets were almost evenly split on the likelihood of Bank of Korea raising rates on Thursday.
The Thai baht was another gainer, bucking the weaker trend in the other regionals after the Federal Reserve kept US interest rates steady after more than two years of rate rises.
The baht, traders said, was helped by comments made by Bank of Thailand to a news agency on Tuesday, suggesting further currency appreciation. The currency had risen to a 3-month peak of 37.45 per dollar in stray deals late on Tuesday.
On Wednesday, the baht held around 37.60/65 per dollar capped this time by central bank remarks that authorities would intervene to contain volatility.
"The message is very clear. They will not allow the baht to rise too fast," a Bangkok-based trader said. "The offshore market is selling dollars but I think they will intervene below these levels."
Trading volumes were thinned by a holiday in Singapore. The yen dropped half a percent in early deals, partly because the Fed on Tuesday left the door open for further rate rises if price pressures were to emerge. It then pared losses and settled around 115.20 per dollar. Anxiety that the pause signalled a slowing US economy, which would be bad news for export-reliant Asia, hurt the other regional currencies.
The Philippine peso and Indonesian rupiah were undermined by concerns over their yields after the Philippine central bank said the pause in Fed tightening gave it room to keep rates steady. Bank Indonesia cut its main rate by 50 basis points to 11.75 percent on Tuesday.
Sentiment on the rupiah was mixed. Towards close of trading it was 0.1 percent lower at levels around 9,090 a dollar. Analysts said the currency's fate depends on how fast Bank Indonesia (BI) cuts interest rates, which were raised sharply last year to rein in inflation and bolster a tumbling rupiah.
If rates are cut too fast, the central bank's credibility would be undermined, given core inflation is still running close to an annual rate of 10 percent.
"Unless BI is too aggressive in cutting rates, we should see the rupiah outperform the rest of the Asians," said the head of trading at a bank in Singapore.
A gradual reduction in policy rates would attract investment inflows into Indonesia's fixed income markets, he said.
"But I would change my view if oil goes above $80," he said. Oil prices have been steadily rising, driven by concerns over tightening supply and Middle East tensions. Oil was trading near $76.50 a barrel on Wednesday. A financial crisis that hammered the rupiah last year was driven by concerns over the impact of high oil prices on Indonesia's economy.
Indonesia's June imports rose 17.6 percent from a year earlier, which analysts said was inflated by unexpectedly large oil imports. They suspect the jump in fuel imports was the result of domestically produced subsidised oil being smuggled abroad.