Most Asian currencies slipped from this week's multi-month highs on Tuesday, shrugging off a firmer Japanese yen as worries grew that more central banks would join South Korea's and India's in reining in their currencies.
The Indian rupee shed about 0.4 percent against the dollar and the South Korean won lost almost a percent from Monday's six-month high of 927.8 per dollar.
The Reserve Bank of India said on Monday it would intervene in the rupee market if necessary and it was suspected of intervening later. Korean finance ministry officials have also warned theamentals and there has been talk that the Bank of Korea has sold the won.
The Thai baht hit its highest in nearly seven years at 36.39 per dollar before talk that the Bank of Thailand had bought dollars capped the currency on Tuesday. "One thing in common with the won, rupee and baht is that the central banks are probably uncomfortable with the recent strength in their real effective exchange rates," said Philip Wee, a DBS Bank currency strategist, referring to the trade-weighted and inflation-adjusted currency values.
A trader in Bangkok said heavy capital flows were behind the baht's one percent rally in the past four sessions. "We haven't seen these levels in so many years. Some importers came in and bought dollars at 36.40 today, but most are just waiting for even lower levels," the trader said.
The rally in the Asians has been driven by inflows of foreign portfolio investments and more recently by comments from People's Bank of China Governor Zhou Xiaochuan that Beijing planned to diversify its $1 trillion in foreign exchange reserves.
But the currencies failed to follow the yen higher on Tuesday. The yen rallied half a percent from the day's lows near 118.17 per dollar after data showing Japan's July-September gross domestic product grew 2 percent on an annualised basis, double the pace economists had forecast.
The Taiwan dollar fell marginally from Monday's two-month highs to around 32.835 per US dollar, before closing at 32.765 in local trade. The Singapore dollar was steady around 1.5560 per US dollar, having come off a nine-year high of 1.5545 struck late on Friday.
Charlie Lay, a currency strategist at Credit Suisse, said investors had turned cautious after the recent gains in Asian currencies, fuelled by the dollar's weakness against the euro and the Chinese reserves comment. "It's nothing new for the market because they have been doing this for years and this will not herald a dollar collapse," he said. Most analysts felt the reaction to the comments was overdone, but investors still used it as an excuse to sell the US dollar.