Asian currencies nudged down against the dollar on Monday as last week's sharp gains, inspired by the Chinese yuan's revaluation, faded and a note of caution crept into the market.
Some investors took profits on the currencies while others moved to the sidelines to digest China's change in policy, especially in light of the yuan's modest weakness on Friday following its 2.1 percent revaluation late on Thursday.
The Indonesian rupiah shed almost three quarters of a percent against the dollar compared with late Asian trading on Friday, as oil prices held firm.
The South Korean won briefly touched a four-week peak at about 1,016 per dollar in offshore trading after a senior finance ministry official said South Korea saw no major problems in the dollar/won trend after last week's yuan revaluation.
However, the won was not so robust in local trading, closing weaker on the day.
The Taiwan dollar, which hit a three-week high of 31.55 per US dollar on Friday, eased as much as a third of a percent.
The Singapore dollar was 0.2 percent weaker at 1.6637 per US dollar, off last week's near two-month high around 1.6490.
"There could be some more profit taking, then I think the trend should be for Asian currencies to strengthen again," said a Hong Kong-based dealer.
"The market needs to settle down over the next few days. We need to see how China reacts - if every day, say, the yuan goes to the upper side of the band and appreciates 0.3 percent, how will China manage that."
The Singapore dollar, South Korean won and Taiwan dollar have been popular proxies to bet on a yuan revaluation.
The yuan traded as high as 8.1089 to the dollar on Monday, strengthening beyond the revalued level of 8.1100 for the first time.
"China is holding its currency down at current levels for the time being, so markets will move onto something else and that is the big dollar picture," said Irene Cheung, head of Asian currency strategy at ABN Amro in Singapore.
The Malaysian ringgit strengthened almost 0.7 percent to 3.7530 per dollar in the second day of trading after Malaysia dropped a dollar peg in favour of a managed float.
The rupiah, which hit a three-week high on Friday, renewed its downward trek versus the dollar. Traders said oil importers used the recent dollar fall as an opportunity to buy the US currency.
Expectations of heavy dollar demand to pay for costly oil imports have hurt the rupiah in recent months. On Monday, international oil prices held firm near $59 a barrel on worries about storms in the oil-producing US Gulf of Mexico.
"There is local demand for the dollar from corporates and government oil importers. They are still buying dollars on dips, which is why the dollar has got a bid tone today," said a trader in Jakarta. "Local corporates are completely ignoring the fact that China revalued the yuan."
Philippine markets were shut for a holiday for President Gloria Macapagal Arroyo's annual state of the nation address, in which she promised to focus on economic reform and overhaul the political system.
Analysts said political uncertainty was likely to continue to act as a drag on the peso, which has shed more than 3-1/2 percent since early May.