The Indonesian rupiah and Philippine peso took a hit on Wednesday as heightened worries about the US economy and geopolitical risks prompted investors to unwind yen-funded carry trades. The high-yielding rupiah slipped nearly 0.4 percent to 9,152 per dollar while the peso fell a fifth of a percent to about 48.20 per dollar.
Higher risk aversion also hit the Malaysian ringgit, which has rallied against the dollar in recent weeks as policy makers touted a stronger currency. It slipped 0.4 percent to about 3.46 per dollar. "The peso and rupiah are the favourite Southeast Asian currencies. So it's natural that the unwinding of yen carry trades would undermine them," said Philip Wee, currency strategist at DBS Bank.
Worries about the world's biggest economy and a rumour of conflict between the United States and Iran, which was later dismissed by US officials, had prompted some investors to unwind carry trades in which they had borrowed yen to fund purchases of higher-yielding assets.
But analysts say the level of risk aversion has yet to lead to the same extent of reversal in carry trades as last month. "I think the risk aversion is the main driver, but it's a long way for panic," said Sean Callow, currency strategist at Westpac Bank. The yen rallied against the dollar as softer-than-expected US consumer confidence data prompted more talk of Federal Reserve interest rate cuts and cautious investors bought the cheap currency to cover their short positions.
The South Korean won gained a tenth of a percent to 939.3 per dollar after the country posted its second-biggest current account surplus in 16 months in February.
Asian investors are eagerly awaiting for Fed chief Ben Bernanke's congressional testimony, due to start at 1430 GMT, for a clearer picture of the US economy.
Bernanke's testimony comes a week after the Fed decided to keep rates unchanged at 5.25 percent and dropped a reference to the possible need for "additional firming" of monetary policy from its post-meeting statement.
"Bernanke's testimony tonight may remind markets that the Fed still considers inflation worries a greater threat to growth risks," DBS's Wee said. Meanwhile, uncertainties remained about which way the baht will head. The Thai baht found support on Tuesday after the Bank of Thailand pledged not to change its currency policy. The baht gained a fifth of a percent to 34.96 per dollar. "The Thai authorities haven't showed that they want to be more relaxed about currency appreciation," said HSBC currency strategist Richard Yetsenga.