Singapore: The Indian rupee was set to end its worst quarter in at least a decade on Friday, leading slides among emerging Asian currencies in April-June on worries about the withdrawal of US stimulus and China's cash crunch.
Though most regional units made modest advances on Friday, emerging market assets are expected to remain under pressure in the third quarter as concerns about the US Federal Reserve's stimulus plans and China's slowing economy persist.
The rupee lost 9.1 percent against the dollar in the second quarter, the largest percentage fall since such data
on Thomson Reuters became available in 2003.
The Indian currency suffered from more outflows than other emerging Asian currencies in the recent global markets rout due to worries about a record-high current account deficit.
"Markets are leaning closer towards being cautious on Asia debt and currencies, with positions being lightened up further," said Suresh Kumar Ramanathan, head of regional interest rate and FX strategy at CIMB Investment Bank in Kuala Lumpur.
"That means a number of fund management and asset management firms are resigning to the fact of lower returns for the year."
Fed Chairman Ben Bernanke said on June 19 that the US central bank may moderate the pace of quantitative easing later this year and end the stimulus by mid-2014.
That boosted expectations of a reduction in global liquidity and prompted outflows from emerging Asian countries, once a major beneficiary of easy money pumped by major central banks.
The speculation also lifted US Treasury yields, reducing yield differentials between US and emerging Asian countries.
Adding to pressure on regional currencies, a brief but sharp spike in China's money market rates fueled fears that the world's second-largest economy could slow further.
But emerging Asian currencies are seen having priced such worries in to some degree, traders and analysis said.
Some regional units such as the won may find relief as investors may seek stronger fundamentals, they added.
"As we saw with the first round of unwinding, investors will select assets on fundamentals rather than dumping Asia as a whole," said Jeong My-young, Samsung Futures research head in Seoul.
"Asian currencies are not free from the Fed and China concerns in the third quarter. But there will be demand for
healthy countries, like Korea and Taiwan," Jeong said.
Frances Cheung, Credit Agricole CIB's senior strategist in Hong Kong, picked up the South Korean won and the Taiwan dollar as her favourite emerging Asian currencies.
The South Korean currency is expected to get support from capital inflows, especially foreign bond buying, while the
Taiwan central bank is intent on maintaining a stable currency, Cheung added.