Earlier this week, the greenback was dented by the Bank of Japan's announcement that it would buy less of the long-dated bonds, triggering speculation that the central bank may wind back its monetary stimulus this year. However, gains in regional currencies on Thursday were capped by a fall in global sentiment, as investors reassessed risk levels and Asian shares fell due to concerns over rising US trade protectionism.
"AXJs (Asia ex-Japan currencies) are mostly higher as USD remains rattled on UST (US Treasuries) concerns," Saktiandi Supaat, an analyst at Maybank, wrote in a research report. "Risk-off sentiments this morning, which is sparking a sell-off in equities, could weigh on the Asian currencies and limit upside intraday." The Thai baht strengthened 0.3 percent to a near three-and-a-half year high, while the Indonesian rupiah firmed slightly.
On the other hand, the Chinese yuan weakened 0.1 percent. Data on Wednesday showed producer prices in the world's second largest economy rose at their slowest pace in 13 months in December. "China inflation data was a bit damp, and that has given traders cause for thought," said Stephen Innes, head of trading Asia-Pacific at Oanda.
The ringgit firmed the most among regional currencies after data showed factory output in November beat analyst estimates, boosted by gains in all three major sectors. Malaysia's industrial production in November rose 5 percent from a year earlier, up from 3.4 percent growth in October. The ringgit was also supported by higher oil prices as energy exports contribute significantly to Malaysia's gross domestic product.
While higher oil prices were a boon for the ringgit, they put pressure on the rupee as India is Asia's second-largest oil importer after China. The rupee fell 0.2 percent on Thursday, with oil prices holding near three-year highs. A rise in oil prices could widen the country's current account deficit. "High oil prices give potential for a fiscal slippage and higher inflation, as crude imports for India remain large," said Supaat.