Weakness in Asian currencies this year amid an unwinding of U.S. monetary stimulus is likely to be broad and not just confined to countries with large-current account deficits, currency strategists say.
U.S. economic indicators over the past week suggest the world's biggest economy is in better shape than financial markets had anticipated. That keeps the spotlight on the unwinding of the Federal Reserve's massive stimulus program that starts this month.
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Trade early in 2014 suggests that it may not be just the Indonesian rupiah and – currencies backed by countries with big current-account deficits – that are vulnerable to Fed tapering jitters.
The on Thursday hit its weakest level in four months at about 1.2738 per U.S. dollar. Earlier this week, the Philippine peso sank to its lowest level in over three years at about 44.85 per dollar, while the Malaysian ringgit last week hit a four-month low.
The rupiah meanwhile has been holding close to a five-year low hit last month at about 12,278 per dollar, while the Indian rupee has been stable in recent weeks, hovering around 62 to its U.S. counterpart. It has recovered about 10 percent from record lows hit in August.
"Dollar/peso is on the cusp of going to new highs, so is dollar/Malaysia, dollar/Sing. Malaysia, [and] the Philippines, have current account surpluses, this is not a current-account deficit issue," Richard Yetsenga, head of global markets research at ANZ bank in Sydney, told CNBC.
"This issue is about who is vulnerable to higher interest rates and in the emerging [market] space that pretty much means everybody," he added.
The survival of the fittest would be the key theme for the year, HSBC said in its 2014 Asia currency outlook published on Wednesday.
"Many Asian currencies will be exposed to periods of higher volatility in 2014. This means that monitoring the FX policy reaction for currencies facing downward pressure will become even more important," HSBC currency strategists said.
They expect the Chinese yuan, and Taiwan dollar to fare better than their Asian peers, with the rupee, rupiah, and likely to be the underperformers, while the Singapore dollar and Philippine peso would lag North Asian currencies.
HSBC has a year-end forecast for the ringgit at 3.33 to the dollar, implying a fall of about 2 percent from current levels. It forecasts dollar/rupiah at around 12,500 by year-end, suggesting a 2 percent fall for the rupiah.
Indeed, signs of improvements and efforts to tackle current-account deficits in Indonesia and India have helped lend some support to local currencies.
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While that means the current-account deficit issue may be less prominent than it was last year when emerging markets were gripped by Fed tapering fears, deficit concerns have not disappeared entirely.
"The experience has been that a rise in the 10-year [U.S. Treasury] yield has been accompanied with a weakening of Asian currencies and I think the rupiah is going to be at the front of the pack largely because it [Indonesia] runs a significant current account short-fall of over 3 percent to GDP [gross domestic product]," Lim Say Boon, chief investment officer at DBS Group Wealth Management.
- By CNBC.Com's Dhara Ranasinghe. Follow her on Twitter @DharaCNBC