The dollar's rally in Asia, which has already hit hard the yen and Australian dollar, spread to the currencies of India, the Philippines and Thailand which slumped to fresh lows on Wednesday.
The selloff came after Treasury yields jumped yesterday, dimming the allure of the high-yield currencies on offer in Asia.
That was bolstered by central bank moves in the region to take pressure off their appreciating currencies which hurts exports. Thailand was the latest, cutting interest rates Wednesday for the first time this year and threatening to add capital controls to push the local currency down even further.
The result is that almost every Asian currency is now down for the year. The Philippine peso fell almost 1% Wednesday to take losses to 3% this year and levels last seen 11 months ago. The Indian rupee has slipped 2.2% in 2013 and is at the weakest in nine months, while the Thai baht is clinging to gains of 1.4% this year but still at its lowest in four months.
It is a sharp turn around from earlier in 2013 when many emerging-market currencies in Asia had been hitting the highest in years, as cash flooded the region when Treasury yields were near rock bottom levels.
"I don't think we'll see the dollar [rally] halting for some time now," said Navin Raghuvanshi, a senior currency trader at Mumbai-based Development Credit Bank 532772.BY -0.11% . In India, while the economy is improving after a severe slowdown and stocks are rebounding to near a record high, the rupee isn't resilient enough to withstand the dollar's advance, he said.
A switch to the U.S. dollar comes as signs the world's biggest economy is improving and will lead the Federal Reserve to taper down its bond buying program that until recently has been keeping yields low. House prices in March jumped by the most in seven years, while consumer confidence in May rose to a five-year high, pushing higher U.S. government bond yields and fuelling a rally in U.S. stocks which are trading at record highs.
The recent declines in Asian currencies join the heavy losses in the Japanese yen and Australian dollar that had started far earlier. Massive Japanese monetary stimulus has pummeled the yen since the end of last year, while the Australian dollar has fallen 8.3% this year to trade at the lowest since 2011, on signs resource-hungry China may slow its commodity buying and as the economy slows.
The Australian dollar continued its rapid descent Wednesday after Pacific Investment Management Co., or Pimco, said it expects Australia to add to its seven interest rate cuts since late 2011 that have brought borrowing costs to a record low of 2.75%. The currency fell to 95.56 Australian cents per U.S. dollar.
While the weaker currencies potentially hurt investments in the region's rallying stock and bond markets, it is a boom for Asian central banks who have been struggling to weaken currencies to help lift exports.
"This is still healthy, and should not be cause for concern," Philippines central-bank chief Amando Tetangco said on Wednesday. "Daily movements in the peso exchange rate, similar to what we saw today, should not be unexpected."
