Asian currencies fell further on Thursday after a call by China's premier for forceful action to slow the country's rapidly expanding economy triggered a sell-off in commodity currencies and a rally in the US dollar.
The Japanese yen fell past 110 to a dollar for the first time since mid-March, even though Japan was closed for Greenery Day, prompting several Asian currencies to hit their weakest levels in 1-1/2 months.
The Korean won fell past 1,170 per dollar, also hit by a steep drop in Korean shares and record daily selling of stocks by foreign investors on Thursday.
In an interview with Reuters ahead of a visit to Europe, Chinese Premier Wen Jiabao said China needed to act forcefully to slow the economy and protect against inflationary pressures.
Reports that some smaller banks in China had been told to halt lending for a few days added to concerns that China was getting very aggressive.
Gold and other commodities fell sharply. The Australian and Canadian dollars weakened.
"I think these measures to cool the Chinese economy are going to hurt other Asian currencies more than they hurt the yuan," said Jimmy Koh, head of research at United Overseas Bank.
That showed in the offshore forwards for the tightly managed yuan. Although Wen said China needed to be prudent about liberalising the yuan, non-deliverable forwards were little changed from Wednesday and continued to price in a three percent appreciation in the currency within a year.
One-year NDFs were quoted at 4,125 points, pricing in more than a five percent appreciation in a year for the yuan, which is effectively pegged around 8.28 per US dollar.
Ahead of the first estimates of US first quarter GDP due later on Thursday, the dollar was boosted as markets prepared for higher US interest rates.
The Singapore dollar fell past 1.70 and the Thai baht struck 40 per dollar, a five-month low, hit hard by violence in Thailand's southern provinces where more than 100 militants were killed on Wednesday.
The Taiwan dollar weakened 0.7 percent from Wednesday's close and the Philippine peso hit a two-week low of 56 per dollar.
Analysts said Asian currency declines reflected the weakness of the yen and euro and markets were probably overreacting to the fear of lower demand from China.
"Markets are moving in the right direction but may be running a little ahead of themselves," said Ray Farris, markets strategist with Credit Suisse First Boston. "It is still hard to know how rapidly the slowdown in China is going to take place," he said, adding CSFB was convinced there would be a slowdown and a painful shakeout in investment. "Investment bubbles do not deflate gradually. They burst."
Farris said none of the Asian currencies were particularly weak in nominal effective exchange rate terms, which measures currencies against those of major trading partners. "A lot of the currencies are basically just reacting to the move in yen and euro," he said.
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