Where Will The Baht Go - Your Theory?

[ludosiam]

There are a few topics about the currency exchange but most of them are on for a while and the usual one on one communication has started, therefore I would like to open a new topic on this matter. There are so many well informed and educated members on this forum and I would be very interested what are the different opinions and theories around.

Here is mine: It came to my attention a while ago that in theory if you bring THB out of the country, convert to USD with the offshore rate, then bring back USD to Thailand converting with the onshore rate there would be a nice profit of about 10%. Now there are some restrictions around to prohibit this but wouldn't it be possible for people who are better connected than the average resident? I actually believe that it is happening and that the BOT with it's capital inflow restriction a while ago that created the on / offshore difference has actually achieved the opposite of what they had in mind. Take out THB here in Thailand unrecorded, convert it to USD and bring it back in would be seen as huge capital inflow and boost up the THB, until we reach the offshore rate. So I believe we can see a rate of 31 - 32 and will only get weaker then if this 2 - tier market is being eliminated.

[Carmine6]

I'm not familiar with all that they did along with the capital restrictions, but I could go either way with it. The intent was to make sure people weren't just buying baht for short term profits, and then turning around and taking the money right back out.

I think you could argue that the strengthing in the baht was apparent enough that with no restrictions speculation would have caused the baht to overshoot current levels. Basically, given that imports are weaking and exports have only recently begun to slow, and the enormous capital infusion this year, you'd expect a stronger baht. Everyone knows that money is looking for international investments. Cash inflows into developing market mutual funds in the US has been enormous for the last year and they have to invest somewhere. In this scenario, the restrictions have smoothed out what would have been some volatile exchange rates the last 6 months.

Another way of looking at it. Everyone subject to the 30% has to bring in that much more money (and buy that much more baht). In this case you've created more demand for baht than if it weren't in place. Also by restricting outflows, there is less selling of baht. Since we haven't hit a year yet, there's no offsetting outflow of that 30% that's just sitting in banks. (But I'm sure those folks now are quite happy with the extra return they've gotten through the stronger baht. Adding bank interest, maybe it'll be 10%+ by the time they can move it out.)

I believe the 1st case is what has happened. Domestic consumption was slowing in 2006 and the coup did not help consumer confidence. Exports in the meantime were growing at a higher rate. I think with these factors plus so much foreign investment, the baht would have moved too quickly and too far if banks and others were allowed to speculate.

However, I don't think that fluctuations are necessarily bad. Would have meant some headlines and some immediate pain for exporters, but that would have made those foreign investors think twice about how much they're putting here. Instead there's a nice strengthening currency and an easier investment decision. Exactly what is not needed right now.

[andy1308]

Very little has been written about the fact that this isn't mainly about the strength of the Thai baht, but more the weakness of the US dollar. When the dollar starts to recover, as it will, the baht will weaken.

[Penkoprod]

Very little has been written about the fact that this isn't mainly about the strength of the Thai baht, but more the weakness of the US dollar. When the dollar starts to recover, as it will, the baht will weaken.

You shouldnt make this too "dollar-centric"...................

July of:

2005 you got 49.5 Baht for every Euro

2006 you got 48.5 Baht for every Euro

NOW getting 43 Baht for every Euro

2005 you got 74.7 Baht for every Pound Sterling

2006 you got 70.1 Baht for every Pound Sterling

NOW you get 64 Baht for every Pound Sterling

Etc, etc

(those are probably offshore rates, so forgive the actual ammounts, but focus, rather on the TREND)

Penkoprod

[waldpyk]

recover against the baht ? or the euro ? or the yuan ?

[Jimjim]

I think the baht is moving differently against the dollar than other currencies. At least that's what I've been hearing. As for where the baht will go, I have no idea as I'm not an expert. Based soley on news stories, I think Thailand wants the baht to go back down and hopefully it will.

[sonicdragon]

Very little has been written about the fact that this isn't mainly about the strength of the Thai baht, but more the weakness of the US dollar. When the dollar starts to recover, as it will, the baht will weaken.

On the contrary, I am tired of saying on this forum that the baht's move higher is in large part due to general dollar weakness.

As to a general recovery in the dollar, well that's another matter entirely, which has also been discussed at length in other threads. My own view is that while further significant (say 30%) dollar weakening vs the CAD, EUR, GBP are probably not likely there will be a trend of yen, and more importantly yuan, strength vs most major currencies, especially the dollar, in the years to come, and this (ie yen and yuan strength) will also put upward pressure on the baht. Obviously these are exogenous factors as far as thailand is concerned. Domestic issues such as political problems with the coming elections may cause the baht to weaken. A shock precipitating a yen carry trade unwind would probably also cause the baht to weaken.

[britmaveric]

Baht crash is coming - very similar conditions to 97 financial crisis.

[backflip]

"... if you bring THB out of the country, convert to USD with the offshore rate, then bring back USD to Thailand converting with the onshore rate there would be a nice profit of about 10%."

That's referred to as "arbitrage", and the TVers who tried that lost money. I'm sure you can do better.

It reminds me of the joke: a teenage boy asked his father, "What's the difference between 'theory' and 'reality'?" The father replied, "Ask your mom if she would sleep with Brad Pitt for one million dollars." The son returns shortly and replies, "She said that she would." The father said, "In theory, we're millionaires. In reality, we're living with a whore."

Edited July 17, 2007 by backflip

[bendix]

"... if you bring THB out of the country, convert to USD with the offshore rate, then bring back USD to Thailand converting with the onshore rate there would be a nice profit of about 10%."

That's referred to as "arbitrage", and the TVers who tried that lost money. I'm sure you can do better.

And that's exactly what I tried to explain to another poster in another thread. Just because xe.com is saying the offshore rate is 30 to the dollar, it doesnt necessarily mean that when you take your baht overseas and try to exchange in a US bank you will GET 30. Notwithstanding the strength of the currency, no overseas bank is gonna want too many Thai Baht right now and the offer price will be a lot less advantageous. You just have to look at the buy / sell spread of other minor currencies to work that out. Whereas buy-sell spreads of Dollars, Pounds, Euro etc are usually only 1-2% at most, for currencies like the IDR or Flip Peso can be as high as 50%. I suspect it will be the same for Baht overseas.

Back to the original question - where is the Baht going?

I have no idea in general, but MY baht is being sent to my bank accounts overseas where it is worth a lot more than before and where I can earn 8% in interest.

The rest of it is going to 'er indoors.