The Indian rupee jumped on Thursday, leading rises in emerging Asian currencies, while the Indonesian rupiah rebounded from a four-year low on expectations the central bank will raise interest rates later in the day to support it.
The rupee rallied sharply to 67.5 to the dollar levels after the central bank said it would supply dollars to oil companies through a separate window in its latest attempt to shore up the currency. The currency fell to an all-time low of 68.8 on Wednesday.
Bank Indonesia is seen increasing borrowing costs at a meeting later in the day in a bid to shore up Asia's second-worst performing currency so far this year.
Spot rupiah rose 0.1 percent to 10,920 per dollar in interbank market with the central bank spotted providing dollar liquidity, traders said. On Wednesday, the rupiah hit 10,950, its weakest since April 2009.
The forwards market pointed to a slight rebound in the rupiah with one-month non-deliverable forwards against the dollar strengthening to 11,420.
Banks in Indonesia still placed dollar bids higher than 11,000, but their levels were lower than Wednesday, traders said. Local companies were also waiting for the central bank's decision before buying the greenback for month-end payments, according to traders.
"Some expected BI to raise rates up to 50 basis points as the rupiah approached even 12,000. Such a hike may stabilise the rupiah for the short-term," said a Jakarta-based currency trader.
"But the increase is a two-edged sword. It may hurt sentiment in bonds and stocks," said the trader.
Five out of seven analysts polled expected BI to raise the benchmark rate by between 25-50 bps. All seven expected a 25 to 100 bps hike in the overnight deposit facility rate, or FASBI, to help prop up the rupiah.
The rupiah was the second worst-performing Asian currency with a 11.8 percent loss against the US dollar, according to Thomson Reuters data. The most-battered Asian unit was the rupee, which has fallen 18.7 percent.
That compared with a 11.2 percent depreciation in the yen's , which was hit by the Abenomics.
The rupee and the rupiah were most vulnerable to an anticipated reduction in quantitative easing by the Federal Reserve due to India's and Indonesia's widening current account deficits, slowing economic growth and strong resistance to implementing much-needed reforms.
India and Indonesia have announced various measures in recent weeks to save their currencies, with little effect.
In Indonesia, the central bank raised interest rates and the government announced steps to reduce current account deficits such as a cut in fuel subsidy.
But those measures are not enough to support the rupiah yet, traders and analysts said.
"They should cut the subsidy more to reduce the current account deficits," said another trader in Jakarta.
The South Korean won rose to 1,108.5 per dollar, its strongest since Aug. 9, on continuous capital inflows and exporters' demand for settlements. Offshore funds also chased the won.
The central bank earlier said South Korea saw significant capital inflows to its financial markets over the most of August.
The won found further support on hopes that Standard & Poor's may upgrade the country's sovereign ratings, traders' said. "The annual review meeting with S&P started yesterday and will last until tomorrow. As long as I understand, they release the result of such review meeting some two months later," Choi Hee-nam, the head of the Finance Ministry's international finance bureau, said.
But Choi declined to comment on the possibility of a rating change after the review.
The won is seen heading to 1,107.6, its June's high. The next level is seen at 1,103.9, a 200-day moving average, analysts said.
The peso gained on short-covering and as stocks jumped after data showing the second-quarter growth was stronger than expected.
But the Philippine currency gave up some of earlier gains on selling from foreign investors.
"Dollar's weakness right after the data was oddly enough," said a senior Philippine bank trader in Manila.
"Idea is still to buy dollar/peso on dips, given worries about the Fed tapering and emerging market contagion," the trader said.