Asian currencies: high-yielding rupiah, peso under pressure

The high-yielding Indonesian rupiah and Philippine peso took a hit on Tuesday as investors scaled back riskier positions after a slide in US stocks. The rupiah fell as far as 9,070 per dollar, down about 0.5 percent from late Asian trade on Monday and its weakest level in more than a week. The peso fell almost 0.6 percent to 46.34 per dollar.
"The high-yielding currencies are all weakening in tandem, although the pace of the peso's depreciation against the dollar seems to be within the normal ranges, so there seems to be not much panic," said a trader in Manila.
"It shows that some investors are lightening their short dollar trades - nobody wants to be caught on the lower end and probably they will bail out and look for better levels to enter."
The rupiah has shed 4 percent and the peso nearly 0.8 percent over the past month as investors cut their exposure to riskier assets amid jitters about rising global interest rates.
But analysts remain optimistic about the underlying strength of the rupiah and peso, given that the carry trade - where investors borrow low-yielding currencies to fund investments in high-yielding assets - shows little sign of abating.
The Fed is widely expected to hold the federal funds rate steady this week at 5.25 percent, but investors will look to the statement on Thursday following the two-day meeting for clues on the policy outlook.
The Indian rupee fell to about 41 per dollar, its weakest level in nearly two weeks. But the Taiwan dollar, the South Korean won and the Singapore dollar were little changed.
"Looking at the equity market, I think it's a flight from risk and that's also what are seeing in currencies," said Tim Condon, head of Asia research at ING. "People are a little bit fearful of what's happening to hedged funds in the Unites States."
Asian stock markets lost ground as investors worried about risks in the US subprime mortgage market, with MSCI's index of Asian stocks outside Japan shedding 0.6 percent.
Such worries intensified after a Merrill Lynch analyst said Bear Stearns, which last week bailed out a hedge fund it manages that is heavily invested in risky mortgage securities, may need to stump up more cash to rescue a second fund.
The yen gained against the dollar, pulling away from a 4-1/2-year low, after Japanese Finance Minster Koji Omi warned that markets should be aware of one-way risks.
The Malaysian ringgit fell as far as 3.475 per dollar, down almost 0.4 percent, despite recent official comments reaffirming the authorities' tolerance for a gradual appreciation in the currency.
Sean Callow, currency strategist at Westpac, said he remained bullish about the long-term appreciation in the ringgit versus the dollar, given the country's solid economic fundamentals, but he warned about near-term risks.
"Not much has changed in terms of the ringgit's longer-term fundamentals, so we retain our year-end target of dollar/ringgit at 3.32," he said in a research note. "But the speed with which investors exited their long ringgit positions this month does not augur well for the ringgit short term."