Thai Baht Rises To Decade High On Carry-forward Trades

[bingobongo]

this will be quite nasty when it unwinds......

Thailand: Thai Baht Rises to Decade High on Carry-Forward Trades The Thai baht rose to a 10-year high on Tuesday, maintaining an eight-day run of appreciation. The currency reached 33.48/U.S. dollar in onshore trading, standing as a 0.4% increase. In offshore trading the currency rose by 0.3% against the U.S. dollar to 31.58. The increase came after heavy selling of U.S. dollars on local markets. Demand from exporters has fuelled the currency's appreciation in recent days. The strengthening of the currency came as the government announced adjustments to swap contract rules in a bid to reduce the difference between the currency's trading rate in onshore and offshore markets. The central bank will now allow overseas investors to renew baht swap contracts with domestic banks. Overseas investors will be able to cover the exchange rate risk of investments by buying swap contracts if assets were purchased before the imposition of capital controls in December.

Significance: When the currency broke the 36.0 ceiling against the U.S. dollar, the government imposed a series of controversial capital controls in a bid to stem carry-forward trades that have boosted the currency. Portfolio capital has flowed into the country as investors seek to exploit the differential between domestic interest rates and low international rates in countries such as Japan and Switzerland. The appreciation in the currency has fuelled calls for further cuts in interest rates amid fears that the competitiveness of growth-driving exports could be undermined. The leading interest rate has been cut by 150 basis points since the beginning of this year to 3.50%. However, speaking in an interview, central bank governor Tarisa Watanagase scotched speculation asserting that monetary policy adjustments were aimed squarely at managing inflationary expectations rather than steering the exchange rate.

[Edonista]

this will be quite nasty when it unwinds......

Thailand: Thai Baht Rises to Decade High on Carry-Forward Trades The Thai baht rose to a 10-year high on Tuesday, maintaining an eight-day run of appreciation. The currency reached 33.48/U.S. dollar in onshore trading, standing as a 0.4% increase. In offshore trading the currency rose by 0.3% against the U.S. dollar to 31.58. The increase came after heavy selling of U.S. dollars on local markets. Demand from exporters has fuelled the currency's appreciation in recent days. The strengthening of the currency came as the government announced adjustments to swap contract rules in a bid to reduce the difference between the currency's trading rate in onshore and offshore markets. The central bank will now allow overseas investors to renew baht swap contracts with domestic banks. Overseas investors will be able to cover the exchange rate risk of investments by buying swap contracts if assets were purchased before the imposition of capital controls in December.

Significance: When the currency broke the 36.0 ceiling against the U.S. dollar, the government imposed a series of controversial capital controls in a bid to stem carry-forward trades that have boosted the currency. Portfolio capital has flowed into the country as investors seek to exploit the differential between domestic interest rates and low international rates in countries such as Japan and Switzerland. The appreciation in the currency has fuelled calls for further cuts in interest rates amid fears that the competitiveness of growth-driving exports could be undermined. The leading interest rate has been cut by 150 basis points since the beginning of this year to 3.50%. However, speaking in an interview, central bank governor Tarisa Watanagase scotched speculation asserting that monetary policy adjustments were aimed squarely at managing inflationary expectations rather than steering the exchange rate.

Excuse me....but where is the interest rates differential ? The baht is not a hıgh yeld currency for sure.

What is happening is massıve foreıgn buyıng on stock market, I guess fueled by expectation of New Constıtutıon approval followed by November electıons. To my opinion such expectation is completely wrong, but in the short term who has the more money is right, and those people who are now buying seem to have a lot of money indeed

Edited July 11, 2007 by Edonista

[teejay]

Go Baht go!!!! Let's hit 20 so I can cash in and retire!

[Naam]

Excuse me....but where is the interest rates differential ? The baht is not a hıgh yeld currency for sure.

your are rigth Edonista. there is not too much difference between the interest rates of THB, JP¥ and CHF. however, speculators still use JP¥ and CHF loans to invest in stock markets which (they think) are undervalued.

only time can tell whether they are right or wrong.