Most Asian currencies dropped against the dollar on Friday, surrendering part of their gains from the previous session as investors fretted about accelerating inflation and prospects for slower economic growth. The Thai baht fell as far as 32.14 per dollar, down three-quarters of a percent from late Asian trade on Thursday.
The baht pared gains from recent sessions, pressured by dollar-demand from domestic oil companies. "Dollar/baht players are standing aside from the market and are reluctant to take large positions, allowing the market to become very thin," said a trader in Bangkok.
Analysts at Citigroup said they expected high oil prices and central bank dollar-buying intervention to limit the near-term gains in the baht, one of the region's top performers this year. "An absence of any surge in offshore flows amid higher oil prices would handicap the baht in the near term and resume weaker trading ranges," they say in a note.
The analysts suspected the Bank of Thailand had bought the dollar at 31.80-31.85 this week to limit the baht's rise. The South Korean won lost about 0.8 percent to 1,047.8 per dollar as importers such as refiners bought the US currency for the settlement of imports despite retreating oil prices.
Crude oil prices retreated below $131 per barrel on Friday from a record above $135 on Thursday due to profit-taking, but analysts say inflation remains a major threat to Asia.
"There are a couple of important themes: rising inflation and central banks being behind the curve, still high oil prices, and some expectations of growth slowdown in Asia," said Thomas Harr, strategist at Standard Chartered Bank. "We have for a long time been calling for a correction in Asia-excluding-Japan currencies in the second to third quarter, and we are seeing the first signs of that now."
The US dollar picked up slightly from a one-month low against the euro hit on Thursday. "Further down the road, faster yuan appreciation - against the dollar as well as in trade-weighted terms - is still most effective way for China to stabilise domestic and imported commodity prices, and thus curb CPI inflation," he said.
The Singapore dollar fell 0.2 percent to 1.3619 per US dollar after the government raised its forecast for 2008 inflation and an official said economic risks had shifted from growth to inflationary pressures. The Malaysian ringgit fell to 3.224 per dollar. Investors are keeping an eye on political factors after the country's long-standing former leader Mahathir Mohamad called on the current prime minister to step down.