The Indonesian rupiah, Malaysian ringgit and Philippine peso led Asian currencies lower on Friday as investors shunned riskier assets on concerns about rising global interest rates. Asian currencies came under selling pressure after a sell-off in US stocks and bonds.
The dollar strength helped to keep the yen under pressure, but traders said the Japanese currency could find support as investors unwind carry trades. "Risk aversion, equity losses and yen carry trade unwind will keep Asian FX under pressure," said Emmanuel Ng, currency strategist at OCBC Bank.
"We look for the ringgit, rupiah and peso to bear the brunt of any pull-back in Asian FX strength, given that these currencies received considerable inflows and buying interest previously."
The high-yielding rupiah slipped as low as 9,100 per dollar, down 2.4 percent from late trade on Thursday, moving to more than 9,000 per dollar for the first time in a month.
Deputy central bank governor Aslim Tadjuddin said on Friday that the rupiah's decline was temporary as the fall was due to global factors and the country's economic fundamentals remained strong.
The rupiah ended the week almost 3 percent lower, making it the third-worst performing currency in Asia after the yen and the Taiwan dollar. The rupiah surged 9.4 percent last year versus the dollar, second only to the Thai baht's performance.
The ringgit dropped as far as 3.468 per dollar, down nearly 1.2 percent to hit its weakest level since late March, while the Philippine peso fell 1.1 percent to 46.52 per dollar. The dollar extended its gains against the euro after staging a broad-based rally on Thursday as a sharp rise in US Treasury yields provided a big draw for foreign investors.
The benchmark 10-year US Treasury note fell sharply on Thursday, pushing its yield above 5 percent. The yield was indicated around 5.18 percent on Friday. Investors are betting that the Federal Reserve will keep rates steady for longer. Rates are rising elsewhere, with the European Central Bank and the Reserve Bank of New Zealand both tightening policy this week.
Reflecting risk concerns, the MSCI's index of regional shares outside Japan fell more than 1.5 percent. Chicago Board Options Exchange Volatility Index, or VIX, rose to its highest level in nearly three months on Thursday. The VIX, known as Wall Street's fear gauge, typically rises as investors become anxious about risk and falls when those concerns subside.