Asian currencies fell back against the dollar on Tuesday after a strong run as some players squared positions ahead of US Federal Reserve Chair Janet Yellen's congressional testimony on monetary policy. The weakness in Asian currencies was in contrast to the firm tone in some regional equity markets, which suggested there was no broad retreat from risky assets.
Shares in South Korea and Indonesia pushed higher, while their currencies fell. "The only thing I can imagine is that people are squaring up," said Mirza Baig, head of foreign exchange and interest rate strategy in Asia for BNP Paribas in Singapore. "We've had a strong run in Asian currencies recently, so it may be profit-taking ahead of what is seen as an important event," he said, referring to Yellen's testimony.
Most emerging Asian currencies have risen this year as investors reacted to easy monetary policies by major developed world central banks by seeking higher returns in the area. The South Korean won led the drop in Asian currencies, falling more than 1 percent at one point on dollar-buying by offshore investors. The won, which climbed to a six-year high of 1,008.4 per dollar earlier this month, fell 0.9 percent to 1,027.4 , suffering its biggest one-day percentage loss in more than five months.
Market participants said the won retreated as foreigners bought dollars ahead of Yellen's testimony to a US Senate committee starting later on Tuesday. A dearth of dollar-selling by local exporters was cited as another factor. The rupiah retreated as the dollar gained a boost on short-covering. The dollar's rise versus the rupiah gained momentum after some dollar-buying orders were triggered at levels above 11,700.
The Thai baht eased 0.1 percent to 32.16 versus the dollar. The baht, however, is still up more than 2 percent compared to troughs hit in early June, having gained when Thailand's political deadlock ended after the military took over the government in May to end months of political turmoil.
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