Emerging Asian currencies could pull back further in near term as investors still hold dollar-short positions, but their overall bullish trend remain intact, dealers and analysts said.
Regional central banks are expected to continue intervening in foreign exchange markets to slow gains in their currencies, but are unlikely to attempt to reverse their strength, they added.
"Fundamentally, we are bullish on AXJ currencies given the global recovery and widening US-AXJ rates spreads, which should drive capital inflows into the region," said Standard Chartered said in a note.
Emerging Asian currencies have seen healthy gains so far this year on inflows to the region's stocks and bonds, and on expectations of further policy tightening to contain inflation amid robust economic growth.
Standard Chartered said shorter-dated bonds in particular should benefit from FX-driven inflows.
Investors are keeping an eye on the Fed's two-day meeting, which starts later in the day.
The central bank is expected to say it will stick to its plan to complete a $600 billion bond-buying programme in June, with the focus on a post-meeting news conference by Fed Chairman Ben Bernanke -- the first regularly scheduled news briefing by a Fed chief in its 97-year history.
But the dollar is seen fragile as the Fed will be in no rush to unwind its super-easy monetary policy.
WON
The won shed 0.5 percent against the dollar as offshore hedge funds and real money investors covered dollar-short positions.
Worries about possible tougher foreign exchange controls also weighed on the won as the country started inspecting foreign currency derivatives trading by four banks, including branches of two foreign banks, that government sources have said could lead to reductions in ceilings of such positions.
After the local currency market closed, two government sources said the country will likely to trim the ceilings by at least one-fifth "as widely expected".
Still, the South Korean currency found support as exporters bought it for settlements, especially around 1,085 per dollar.
"I don't see any other reasons to sell the won except position adjustments. The won may fall more on short-covering, but I don't think it will weaken past 1,090," said a local bank dealer in Seoul.
RUPIAH
The rupiah fell and filled most of a gap as investors covered dollar-short positions, but later recovered some losses as further falls are seen as limited.
Earlier, the Indonesian currency lost up to 0.8 percent to 8,690 against the dollar, a notch 8,692, the session high of 8,692 on April 1, a day before it gapped up.
The dollar/rupiah's 14-day relative strength index rose to 38.974, the highest since February 3, indicating the pair got out of an oversold territory.
The RSI had been below 30 since February 7 by the previous session except two days, as investors chased it on expectations that the country will allow more appreciation to fight inflation.
Still, the rupiah's gains is seen slow on caution over the central bank's dollar-buying intervention. IFR said local banks bought the pair on behalf of Bank Indonesia.
PESO
The peso fell on fixing related dollar demand and dollar-short covers before the Fed's meeting.
The Philippine currency, however, found support around 43.34 per dollar, the 61.8 percent Fibonacci retracement level of its November-January weakening.
A European bank dealer in Manila said the peso is unlikely to move much, adding it will stay within recent range of 43.00-43.50.
The central bank had been seen defending 43.00 while the peso has a 50 percent retracement level of March-April strengthening trend around 43.51.
BAHT
The baht eased on end-month dollar demand from importers and investors covered dollar-short positions.
The central bank's governor said the Bank of Thailand will intervene periodically in the currency market to limit volatility over the short term, following the baht's gains.