The Taiwan dollar hit a five-month high on Friday after the central bank raised interest rates by bigger-than-expected 25 basis points a day earlier, while other Asian currencies mostly moved in tight ranges. The Taiwan dollar stuck near 32.77 per US dollar after strengthening as far as 32.723 in early trade.
The benchmark discount rate rose to 3.125 percent, the highest since September 2001. The move aimed to discourage capital outflows and the use the Taiwan dollar as a funding currency for riskier investments in high-yielding assets, analysts said.
But some analysts say the Taiwan dollar still may come under downward pressure in the medium-term, given the island's weak economic fundamentals and political uncertainties.
"We think that the latest decisions were a reflection that the central bank is more concerned over recent weakness in the Taiwan dollar than the risk of growth moderation," said Christy Tan, currency strategist at Bank of America.
"In addition, political uncertainties in the run-up to the legislative and presidential elections could potentially be overwhelming factors sustaining capital outflows and underpinning US dollar versus the Taiwan dollar in the medium term."
The Taiwan dollar remains the second worst-performing Asian currency, down more than 0.5 percent so far this year against the US dollar, behind the Japanese yen, which fell 4 percent. The Malaysian ringgit fell nearly 0.5 percent to about 3.462 per dollar while the South Korean won briefly hit a one-week low at 928.9 per dollar.
But most regional currencies held ground after a rebound in US bond yields, which markets watch closely after their recent spike took a toll on some high-yielding currencies. The high-yielding Indonesian rupiah was steady at 9,010 per dollar, while the Philippine peso, another high-yielder, was little changed at 46.14 per dollar.
"The FX market continues to be somewhat detached from the cautiousness prevailing in the debt markets. We think this is because of the continued search for yield," said Emmanuel Ng, currency strategist at OCBC Bank. "Nonetheless, we remain on the lookout for any contagion from the debt markets into the FX markets, with emerging Asia likely to feel the weight of any potential fallout," he added.
The yield on benchmark 10-year US Treasuries rose further to 5.18 percent on Friday from as low as 5.08 percent on Tuesday, but still off a five-year peak above 5.3 percent last week.