Looks like the BOT is buying the baht again

[Adumbration]

I saw yesterday and then again today the AUD plunged against the Thai baht.  I thought it was a further collapse of the AUD, however upon inspection of other THB currency pairs it is clear the BOT is stepping in to buy the baht.

[Jerno]

Yes it seems.  But they need to be careful that they don't get  onto the USA currency manipulation watch list (again).

[sidjameson]

The surge in tourists and the expected surge of Chinese buying bht. That was my uneducated guess.

 

[Adumbration]

6 hours ago, sidjameson said:

The surge in tourists and the expected surge of Chinese buying bht. That was my uneducated guess.

 

No definitely not that because there are sudden and huge intra day swings in THB currency pairs.  Definitely intervention by the BOT.  Perhaps they are motivated to keep the baht as high as possible during high season...and that would be a very clear example of currency manipulation.

[KhunBENQ]

Something is suspicious.

EUR/THB nosediving while EUR/USD is not that bad.

 

Edited January 5, 2023 by KhunBENQ

[Elkski]

Some of these western travelers made plans for a Thailand vacation when it was 5-8% higher.  And just a few months ago it was 38 now 34.   Ouch.  That's quite a few less massages for the typical 1500usd spend on a vacation. 

Edited January 5, 2023 by Elkski

[sandyf]

8 hours ago, Jerno said:

Yes it seems.  But they need to be careful that they don't get  onto the USA currency manipulation watch list (again).

And who watches the USA currency manipulation?

Every country in the world does what it can to protect the currency. Last year when Liz Truss tanked the pound the BOE intervened. Didn't see any threads on UK currency manipulation then.

[Adumbration]

9 minutes ago, KhunBENQ said:

Something is suspicious.

EUR/THB nosediving while EUR/USD is not that bad.

 

Yes I picked up on the same issue a couple of days ago.  AUD plunged in a straight line against the THB but not against the USD.  BOT is definitely manipulating the baht. I suspect it is just profiteering to keep the baht high during the arrival of the Russian invasion.

[nigelforbes]

My previous post on this subject seems have been deleted, I wonder why!

 

Regardless, there is no evidence that BOT manipulates the Baht, most importantly it's not in their best interests to do so. The Baht strengthened because USD dipped slightly because the FOMC minutes are due to be released and because of forecasts on Chinese tourist arrivals. Markets have already said that THB and SGD will be the strongest growing currencies this year.

 

But back to best interests, why? Firstly, a Baht at 33 is good value all round and everyone knows this, except expats. 33 is a level where export prices are attractive, without exporters being screwed. Secondly, any markets intervention would be to weaken THB, not strengthen it, to try and strengthen the Baht would be to hurt tourism and exports, plus it would risk the US labelling BOT as a manipulator, of which it has already been established there is no proof.

 

Lastly, THB typically strengthens at the start of the month, around 3 or 4, as US Social Security payments are received in Thailand. The Baht is such a small currency that even that relatively low volume of THB purchases against USD,  has an impact on the restricted and boutique currency.

 

Edited January 5, 2023 by nigelforbes
Change to USd from GBP

[Gottfrid]

21 minutes ago, KhunBENQ said:

Something is suspicious.

EUR/THB nosediving while EUR/USD is not that bad.

 

That is just because the connection between USD and THB has gotten weaker than before.

[nigelforbes]

Sorry, my error, I used GBP to make my point and intended to use USD, I've now changed it.

[steve187]

£ is dipping fast as well

[KhunBENQ]

8 minutes ago, Gottfrid said:

That is just because the connection between USD and THB has gotten weaker than before.

What I wanted to point out: it's not a Euro weakness but obviously Baht rising against (all) others.

 

 

[Kwasaki]

3 hours ago, KhunBENQ said:

Something is suspicious.

EUR/THB nosediving while EUR/USD is not that bad.

 

Yes i noticed that I'm no expert but thought when dollars 1.14 to £ the baht was say 43 and the dollar today is 1.20 to £ the baht is at 40.???

[ozimoron]

Given that tourism (an export) is the economic mainstay these days, it makes good economic sense to keep the baht high. If they are buying baht then that's a smart move. Not one I like but understandable. Thailand does not need to stimulate tourism. The post covid appetite for tourism is doing the job.

Edited January 5, 2023 by ozimoron

[Kwasaki]

29 minutes ago, ozimoron said:

Given that tourism (an export) is the economic mainstay these days, it makes good economic sense to keep the baht high. If they are buying baht then that's a smart move. Not one I like but understandable. Thailand does not need to stimulate tourism. The post covid appetite for tourism is doing the job.

Does that mean Thailand can set their own baht rate's against other world currencies instead of the trading money market.? 

[eisfeld]

1 hour ago, Kwasaki said:

Does that mean Thailand can set their own baht rate's against other world currencies instead of the trading money market.? 

If they were able to fix the rate then the rest of the market would be at the same rate as arbitrage would close any gap.

 

Instead the Bank of Thailand has a few methods to influence the strength of the Baht like interest rates and buying/selling using their foreign reserves.

[John Drake]

6 hours ago, nigelforbes said:

Regardless, there is no evidence that BOT manipulates the Baht, most importantly it's not in their best interests to do so.

They admitted to doing so in a statement a couple of months ago.

[nigelforbes]

1 hour ago, John Drake said:

They admitted to doing so in a statement a couple of months ago.

BOT admitted to intervention in the FOREX market, not to currency manipulation. When USD was rapidly strengthening and was at 38, they attempted to smooth out some of the peaks, I think some at BOT were having a 1997 moment! That was not currency manipulation in the sense that the US defines it, nor is it that in the classical sense. BOT saw the ever strengthening USD as a threat to exporter survival and attempted to defend the Baht, even though the same thing was happening to other EM and regional currencies. One can argue that, under IMF rules, it is the central banks responsibility to smooth out the peaks and troughs of currency volatility. That incident was more than peaks and troughs, it was quite unprecedented.

 

The US problem with Thailand and their currency strength is very different. Thailand maintains imports artificially low which nearly always generates a trade surplus and a surplus in the current account. Those two things, combined with an an aver increasing volume of foreign currency in the Foreign Currency Reserves, makes THB strengthen almost continuously. If Thailand were to loosen import restriction, the trade balance would become more realistic and THB would be more influenced by market forces.

 

 

[nigelforbes]

Using the term, currency manipulation to account for Baht strength is the lazy persons way of avoiding thinking about the issue and failing to understand the problem!

 

Roger Bootle, Chairman of Capital Economics. wrote a seriously good article in the Telegraph this morning about the UK's debt problems. The article is an excellent example of why Thailand's economy is stronger and why the Baht continues to strengthen. I can't link to it because it is behind a paywall, but you may be able to find it bye searching for "Foreign rivals have bought up Britain – now we are at their mercy".

 

In it he refers to the UK's National Debt which is 90% of GDP, this compares to Thailand's which is about 61%. He goes on to talk about the UK, prior to WWII, having a stock of overseas assets equal to 170% of GDP whereas today it is persistently negative. In 1997, that stock of assets was worth 20% of GDP, today it is -18%! Thailand's history is the opposite, prior to 1997 their stock of overseas assets was almost zero, today it is substantial, as the following graph from the World Bank demonstrates.  

https://data.worldbank.org/indicator/FM.AST.NFRG.CN?locations=TH

 

The UK's net position is determined by the current account of the balance of payments. In the UK’s case, the UK has persistently run current account deficits which have undermined their net international asset position. The UK has only managed to hold their own by a combination of a tendency to invest in assets abroad with higher returns than their liabilities to foreigners, and the tendency of the pound to fall on the exchanges, thereby reducing the international value of our liabilities. Thailand on the other hand almost continuously operates a current account surplus (covid era notwithstanding) because the country's  overseas liabilities in foreign currency is less than 4% of GDP. As a consequence the Baht has a tendency to rise or strengthen.

 

 

"The fact that we (the UK) are a significant net debtor means that unless we are peculiarly clever in our overseas investments, or take extra risks, there will be a persistent net outflow of interest payments and dividends abroad. For any given level of national output, this reduces the amount of resources available for domestic use. Interest payments on gilts held by foreigners are just a component of this. And if our net international asset position worsens, it is the equivalent of negative net investment. This might not matter if investment in the domestic economy was strong. But investment in the UK economy is pathetically weak". Again, compare this situation with Thailand's cash flow overseas which are almost non-existent plus the endless stream of companies wanting to invest in the country via the BOI scheme.

 

In summary, low public debt, consistent current account surplus from exports/tourism, overseas investment and assets, and, retained earnings in the country, all strongly favor Baht strength. Unless things change substantially, which they haven't really since the turn of the century, the long term trend of THB continues upwards, as it has been more or less has been since 2000, and that of the Pound is downwards, as it has since WWII. 

 

https://tradingeconomics.com/thailand/currency

 

 

 

Edited January 9, 2023 by nigelforbes
Add World Bank graph

[sammieuk1]

Last year I changed enough cash for a year at 45.5 to the £ this year its 40.7 so got no choice but to wait and change small when it absolutely runs out????  

[Adumbration]

2 hours ago, nigelforbes said:

Using the term, currency manipulation to account for Baht strength is the lazy persons way of avoiding thinking about the issue and failing to understand the problem!

 

Roger Bootle, Chairman of Capital Economics. wrote a seriously good article in the Telegraph this morning about the UK's debt problems. The article is an excellent example of why Thailand's economy is stronger and why the Baht continues to strengthen. I can't link to it because it is behind a paywall, but you may be able to find it bye searching for "Foreign rivals have bought up Britain – now we are at their mercy".

 

In it he refers to the UK's National Debt which is 90% of GDP, this compares to Thailand's which is about 61%. He goes on to talk about the UK, prior to WWII, having a stock of overseas assets equal to 170% of GDP whereas today it is persistently negative. In 1997, that stock of assets was worth 20% of GDP, today it is -18%! Thailand's history is the opposite, prior to 1997 their stock of overseas assets was almost zero, today it is substantial, as the following graph from the World Bank demonstrates.  

https://data.worldbank.org/indicator/FM.AST.NFRG.CN?locations=TH

 

The UK's net position is determined by the current account of the balance of payments. In the UK’s case, the UK has persistently run current account deficits which have undermined their net international asset position. The UK has only managed to hold their own by a combination of a tendency to invest in assets abroad with higher returns than their liabilities to foreigners, and the tendency of the pound to fall on the exchanges, thereby reducing the international value of our liabilities. Thailand on the other hand almost continuously operates a current account surplus (covid era notwithstanding) because the country's  overseas liabilities in foreign currency is less than 4% of GDP. As a consequence the Baht has a tendency to rise or strengthen.

 

 

"The fact that we (the UK) are a significant net debtor means that unless we are peculiarly clever in our overseas investments, or take extra risks, there will be a persistent net outflow of interest payments and dividends abroad. For any given level of national output, this reduces the amount of resources available for domestic use. Interest payments on gilts held by foreigners are just a component of this. And if our net international asset position worsens, it is the equivalent of negative net investment. This might not matter if investment in the domestic economy was strong. But investment in the UK economy is pathetically weak". Again, compare this situation with Thailand's cash flow overseas which are almost non-existent plus the endless stream of companies wanting to invest in the country via the BOI scheme.

 

In summary, low public debt, consistent current account surplus from exports/tourism, overseas investment and assets, and, retained earnings in the country, all strongly favor Baht strength. Unless things change substantially, which they haven't really since the turn of the century, the long term trend of THB continues upwards, as it has been more or less has been since 2000, and that of the Pound is downwards, as it has since WWII. 

 

https://tradingeconomics.com/thailand/currency

 

 

 

Thanks for the Novella.  But the thing is all of the factors you have detailed in your post will not cause the baht to swing 2-3% in a matter of hours...and that is exactly what had been happening.  Someone was buying huge amounts of the baht in a single purhcase.  Who else would that be other than the BOT?  There was also a tiny one paragraph article in one of the Thai rags a month or so ago where the BOT admitted that they had and will continue to buy the baht.  

[Mike Teavee]

3 hours ago, nigelforbes said:

I can't link to it because it is behind a paywall,

Try https://12ft.io/ 

 

 

[nigelforbes]

17 minutes ago, Mike Teavee said:

Try https://12ft.io/ 

 

 

Thanks, that's useful. 

[ChaiyaTH]

Really makes no sense for THB to keep this strong, this game been going for years now too.

[nigelforbes]

40 minutes ago, Adumbration said:

Thanks for the Novella.  But the thing is all of the factors you have detailed in your post will not cause the baht to swing 2-3% in a matter of hours...and that is exactly what had been happening.  Someone was buying huge amounts of the baht in a single purhcase.  Who else would that be other than the BOT?  There was also a tiny one paragraph article in one of the Thai rags a month or so ago where the BOT admitted that they had and will continue to buy the baht.  

I have no difficulty if you or anyone else either doesn't believe or don't want to believe and want to continue hiding behind the notion of manipulation. Personally, I'd feel pretty stupid if I walked around all day telling everyone the earth was flat but each to their own.. At least those who genuinely don't understand, have an alternate basis to explore.

 

As I've said repeatedly, BOT is obliged, under IMF rules, to intervene to smooth out peaks and valley's in the baht's vale. That is their job, to aid exporters and they will never say they don't do that. But currency manipulation and intervention under IMF rules are very different things. BOT was buying Baht when USD was at 38 and they acknowledge that was fool hardy but once again, that's their mission under IMF's Managed Float. 

 

A 2 or 3% change in value in intraday trading is not unusual, big sales happen, big purchases happen. As also said previously, a 5% swing at the start of the month when US SSc payments are issued sounds reasonable, not that the swing is permanent. Intraday values are typically very volatile, that's the nature and design of the FOREX, there's no story to be had on 2 or 3%, move along. Perhaps one thing that escapes most people is that because THB is such a small currency, it doesn't take much to move it one way or the other. In terms of size, THB is a boutique currency that represents less than 1% of the FOREX.

 

If you want to believe the real story is currency manipulation, my questions are, why and how? BOT's numbers are there for all to see, show me us where and how.

.

 

 

[nigelforbes]

14 minutes ago, ChaiyaTH said:

Really makes no sense for THB to keep this strong, this game been going for years now too.

Why does it make no sense, is it because you don't understand or do you have reasons why? The facts are that Baht strength makes perfect sense to Markets, to FOREX players, to economists and to anyone else who understands the reasons why.

Edited January 9, 2023 by nigelforbes

[nigelforbes]

A helpful read here from BOT that confirms many of the things I wrote earlier:

 

https://www.bot.or.th/English/BOTStoryTelling/Pages/FinancialMarkets_StoryTelling_Press.aspx

[nigelforbes]

And yet another:

 

https://finance.yahoo.com/news/emerging-markets-thai-baht-7-073931053.html

 

"The Thai baht firmed on Wednesday on hopes of a tourism boost after the easing of COVID restrictions in China, while most other Asian currencies remained muted ahead of the release of U.S. Federal Reserve policy meeting minutes. The baht rose for the fourth session in a row, up 0.8% to its highest since May 31".

[fulhamster]

On 1/5/2023 at 12:49 PM, Kwasaki said:

Does that mean Thailand can set their own baht rate's against other world currencies instead of the trading money market.? 

Perhaps they are already doing that ??