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Baht expected to strengthen further

It expects the baht to appreciate to Bt28.6 against the US dollar by the end of this year. However, with the rest of Asia’s currencies also set to appreciate, the baht’s strength may be of less concern, HSBC said.

The bank said the baht’s appreciation looked certain despite near-term impacts on Thai exports from supply disruption. In the shorter term, developments in Japan will probably benefit Thai exports of canned goods, frozen goods and rice.

Car exports are also likely to gain from Japan’s probable relocation of manufacturing bases, even though production may be disrupted in the short term. Thai exports will be further boosted because demand in Asia remains strong.

HSBC also said foreign direct investment in Thailand would also pick up in the medium term.

The baht opened yesterday at Bt30.06 per dollar, before weakening to end the day at Bt30.12. Treasurers attributed the intra-day weakening to the long holiday period, which prompted foreign investors to temporarily shift money out of Thailand. They expected the currency to trade in a range of Bt30.05 to Bt30.12 today.

Last week, the currency gained every day, due to inflows to the stock market. Foreign investors’ net buys – the aggregate buys against sells – totalled US$360 million (Bt10.83 billion).

The Stock Exchange of Thailand (SET) Index lost 6.36 points, or 0.59 per cent, yesterday to end the day at 1,076.33 points, on turnover of Bt25.8 billion. However, foreign investors remained net buyers, with a net buy position of Bt713.99 million.

The baht also weakened on intervention by the central bank.

Bank of Thailand Deputy Governor Atchana Waiquamdee said the central bank intervened to curb currency fluctuations, especially during a selling spree of US dollars when Thai investors sold gold in global markets. As they sold gold, they brought in dollars and that increased demand for baht.

The dollar also weakened against other currencies, following the European Central Bank’s interest-rate hike last week – the first since 2008.

In this period, the baht has been relatively stronger, in parallel with other regional currencies, due to the European Central Bank’s rate hike. A relatively large amount of funds flowed into Thailand, including profit-takings in gold by Thai investors, Atchana said.

The baht, which last week spiked up above Bt30 per dollar for the first time since January, will continue to appreciate because of expected higher exports and more foreign direct investment, boosted by the natural disasters in Japan, according to HSBC Global Research.

“The US dollar is weakening against the euro and the baht, and funds are flowing in and there are profit-takings in gold after rises in its price,” she said. When Thai investors sell gold for US dollars, they convert the dollars into baht, boosting demand for the Thai currency.

HSBC said there was also a chance for Thailand’s foreign-exchange policy becoming more accommodative of currency strength in the future. In the last six months, the central bank’s estimated monthly intervention has averaged 1.4 per cent of annual gross domestic product, the bank said.

HSBC expects the central bank to allow greater appreciation of the baht as costs of sterilisation are at record levels and inflation pressures are growing.

Source: The Nation

ThaiVest Editorial Team