The persistent weakness in Asian stocks and an unwinding of carry trades dragged most
regional currencies lower on Monday, with the South Korean won hitting its lowest level since late October against the U.S. dollar.
The won slipped about 0.7% to about 950 against the dollar, while the Indonesian rupiah fell about 0.4% to 9,210 against the dollar, its weakest since mid-November.
The yen surged across the board on Monday, striking a three-month high against the dollar as another wave of investors rushed to reverse bets against the Japanese currency amid anxiety over tumbling stock markets.
The carry trade, in which investors fund the purchases of higher-yielding and riskier assets with borrowing in the low-yielding yen, had driven the Japanese currency to a four-year low against the dollar in late January.
"I think the unwinding of risk positions is not complete yet, so the market is having lots of stop losses being triggered," said Thio Chin Loo, currency strategist at BNP Paribas. "Asian currencies have held up well so far due to a positive correlation with the yen, but Asian stock selling has limited any yen-led gains," she added.
Asia's battered stock markets fell again on Monday, extending a sell-off that began last week, with MSCI's index of Asian stocks outside Japan down about 2.4%.
Shahab Jalinoos, currency strategist at ABN AMRO, said that the won's weakness indicated worries about a slowdown in the U.S. and global economic growth, but also unwinding carry trades.
"Given the scale of yen financing that has been going on in Korea (corporate borrowing, residential mortgage borrowing etc.) the more likely scenario is that this is just another blow-up in the yen carry trade," he said in a research report.
The Philippine peso dipped by about a third of a percent to 48.87 against dollar while the Malaysian ringgit fell a quarter of a percent to near 3.51 against the dollar.
But the Chinese yuan strengthened as far as 7.7389 against the dollar after the central bank set the daily mid-point at 7.7403, the highest level since China untethered the currency from a dollar peg in July 2005 and let it float within managed bands.
Central bank governor Zhou Xiaochuan said on Monday that China will consider widening the yuan's daily band, under which the yuan can rise or fall 0.3% against the dollar from the mid-point, when necessary but has no timetable for doing so.
Wu Xiaoling, deputy governor of the People's Bank of China, reaffirmed on Saturday that Beijing would follow its own path on reforming the yuan's exchange rate regime, even in the face of
U.S. pressure to make the currency flexible more quickly.
"The direction of our reform will not change, and the pace of the reform will be controlled by us," Wu said in response to a question about what she would tell U.S. Treasury Secretary Henry Paulson if he pressured China on the yuan this week.
Paulson is scheduled to make a brief stop in Beijing on March 7 as part of an Asian tour.