The Malaysian ringgit fell half a percent on Tuesday, leading a retreat in Asian currencies as investors exited stretched positions ahead of a string of US economic data that could determine direction for the US dollar.
The ringgit gave up all of this week's gains to hit 3.4110 per dollar, down 0.8 percent from Monday's 4-month high of 3.3850. The Singapore dollar shed 0.5 percent, swinging from a high of 1.4753 per US dollar to a low of 1.4835. And the Indonesian rupiah was forced off a 2-month high of 9,055 per dollar and pushed to levels around 9,100, slightly down on the day.
"I think there was some intervention in the Singapore dollar," said a trader. "But, in general, people are also worried about the sharp sell-off in dollar/Asia, and some fast money accounts are covering their shorts now," he said.
Worries about excessive positioning against the dollar also saw high-yielders such as the Australian dollar decline. The dollar stayed just off record lows against the euro, helped in part by a record high close in the Dow Jones industrial average on Monday.
It also got a breather as markets waited for a series of data and central bank policy meetings, including the Bank of England and European Central Bank on Thursday.
The US Institute for Supply Management's non-manufacturing index and non-farm payrolls reports are due later this week, and could offer clues on whether US rates will be cut again to offset the impact of a housing market slump. The Philippine peso gained 0.2 percent to 44.74 per dollar in early deals before ending local trade slightly weaker at 44.915.
The Taiwan dollar retreated to 32.57 from the previous session's 9-month high of 32.465. Markets in India and China were closed for holidays. Foreign demand for Indonesian stocks and bonds has helped drive the rupiah up nearly 4 percent in 3 weeks. Some analysts expect it will continue to be strong near term.
The rupiah has been underpinned by investment inflows into a rising Jakarta stock market, whose index hit an all-time high on Tuesday. Analysts said expectations that the authorities will cut policy rates again and also encourage rupiah appreciation to rein in imported inflation from higher oil prices were behind the growing foreign appetite for Indonesian assets.
Indonesia's one-month policy rate, now at 8.25 percent, has already been cut 13 times in line with falling inflation, but there are signs now that price pressures are returning.
"The broad US dollar backdrop continues to be weak... and the balance of payments surplus will continue to support rupiah appreciation," J.P. Morgan Chase said in a note. "This, in our view, will drive dollar/rupiah to 8,700 by year-end and may also dampen inflationary pressures through softer import prices," J.P. Morgan said.
But J.P. Morgan also warned that low interest rates could spur a domestic demand recovery and that would cause the trade surplus to shrink next year, resulting in a weaker bias for the rupiah.