Thai Baht Weakening

[george]

Thai Baht Weakening

From The Rounds at BangkokAtoZ.com

Thailand's currency, the baht, has bee gradually weakening against the U.S. dollar, fluctuating a bit, but ever so slowly drifting downwards in relative value.

This drift downward is another source of concern regarding the short- to medium-term future of the Thai economy. As I've reported in the past, local and foreign expert observers have expressed concern about what's in store, though as far as I know, most of that concern has centered on skyrocketing property prices. (Last week I reported on the amazing spike in land prices in Krabi and neighboring provinces.)

Not being an economist or any other kind of economic expert, I don't have a clue as to *why* this erosion of the value of the Kingdom's currency is going on -- only that it *is* happening.

Though we have not seen a repeat of the post-1997 economic crash increase in retail prices yet, recalling the previous increases I can't help but wonder if we're facing yet another round of spiraling prices if the baht continues to weaken. Such increases for products and services that don't involve foreign goods or services are irksome, at best, though everyone pretty much agrees that prices for imported products and foreign services have to increase to offset any devaluing of the baht. According to an exchange rate newsletter I take, on Thursday the baht closed at 41.4024 to the U.S. greenback; even that was stronger than a day or two earlier, when it closed at about 41.44 -- roughly 3 more baht to buy a single U.S. dollar than it took several months ago.

The situation presents something of a conundrum for those of us who both have incomes denominated in U.S. dollars (as I do) but who also harbor no ill will against our Thai hosts. After all, I (for example) had my best income -- in baht terms -- a few years ago, when the baht stood at about 58 to the buck. At the same time, I have friends who have local businesses that involve buying foreign goods and/or products -- often priced in U.S. dollars -- and they got seriously hurt, of course, and I couldn't help but feel sorry for them. (This applies to foreigners who have businesses here as much as it does to Thais.)

Despite fluctuations, the general drift is downwards, for now. Just this week the government was reported as lowering its forecast for economic growth this year in anticipation of a drop in domestic consumption; the thought now is that economic growth this year will be somewhere between 6% and 7%.

Kurt

--BangkokAtoZ.com 2004-08-08

[ovenman]

Despite fluctuations, the general drift is downwards, for now.

Indeed, for now. Just a short while back, it seemed to be a foregone conclusion by many that the baht would soon be at the 35 baht/dollar level. So who really has a clue as to how any of this exchange rate stuff is going to work...?

[Dancali]

A weak Thai baht is not cause for alarm but instead one for celebration for Thailand as a whole.

It's one of the basic understandings of international economics that a weak currency is good for a country. This means stuff is cheaper for foreigners to buy so you spur your economy with foreign demand (exports).

This is why the Bank of Japan spends billions on keeping its currency weak. This is why China refuses to let its currency float but instead keeps it pegged at a weak level.

Of course, there are winners and losers, but the net effect is increased demand and economic growth.

Sometimes banks do risky things like lending baht which must be paid back in dollars and this causes problems if the baht crashes, but the problem is the careless lending practices more than the currency fluctuations.

"Weak" really is good, and "Strong" is bad.

[ovenman]

It's one of the basic understandings of international economics that a weak currency is good for a country.

Sure, that's quite true in an export-driven economy, which is why it was sorta funny a short while back when Mr. Big was boasting that the baht was heading into the thirties. Those comments led to some real quick backpedaling by various government financial poo-yai.

[Stocky]

Forget the US$ the Baht is 76.07 to the Pound and 50.68 to the Euro!

[Darlek]

prolly a whole bunch of reasons, asian economies have to spend more and more on oil imports , US spending is said to be slowing indicating a possible economic slowdown.

Worst of all previous high spikes in oil prices have been followed by global economic slowdowns . Oil could go to 70$ ! demand far outstrips supply .

Investors dont like all this bad news .

and there is unrest in the south ...and a trade deficit due to high spending on oil imports .

[Mr Red]

Since the Americans have been moving toward favored trade status for Thailand, a lower baht in relation to the dollar should increase the exports from Thailand to the US. If most of the trade barriers are being removed, this is not necessarily a bad thing for Thailand. However, the imports will suffer.

Since I have not had the pleasure of taking up residence in Thailand yet, this brings up a good point -- how much of what you consume in your normal daily life in Thailand is imports and how much is domestic? Being able to establish a ratio of your consumption habits (import vs. domestic) might be able to help you predict the impact of higher priced imports.

[TRIPxCORE]

Being a currency investor myself, I follow these situations closely. The main reason USD is gaining ground vs. THB, as well as others, is because investors like to put their money into the USA because being it is so large, they feel their money is safe in such a country. Investors hold out the greatest hopes for the US economy, wanting it to be their safe haven from a world that is anything but. Whenever there is the slightest piece of good news from the US, investors snatch up USD and drive down everything else. Lately people have been driving up USD with the hope that the US Federal Reserve is going to be aggressively raising interest rates which in turn make USD denominated assets more attractive to foreign investors. Recent news out of the US has been disappointing concerning the economy so the USD has faltered a little, especially last Friday.

Now, if the economic news out of Thailland continues to show property prices being so overvalued, banks making continuous bad loans, and government officials revising their economic forecasts downward, then that will in itself hurt THB and make people bail out of it. Right now though, I think it is more false hope for the US instead of THB weakness. IMO

[mbkudu]

I recently read that the high gas prices in the US are having a negative effect on the US economy. People are spending a lot more money on gasoline and subsequently less on consumer goods. I guess all of this has a chain reaction effect on other countries because most consumer goods in the US are imported from countries like China, Thailand, Taiwan, ect. So, saying this, it seems this would put Thailand at an advantage because US buyers can purchase Thai goods cheaper. US consumers may be buying less, but they will still be buying none the less and the goods will be cheaper. However, the higher fuel costs will offset any savings, so there we are back to the beginning again.

[john b good]

The baht is not weakening (it was never strong)

When the baht was trading higher against the greenback it was because the US$ had depreciated against all currencies.

The Oz$ had the highest appreciation and the NZ$ was not too bad either.

Regardless of what the 'head waiter' attempts to have everyone believe the baht never became stronger hence it is now not weakening 'the US$ is strengthening'

[mbkudu]

True, I think most small countries' currencies like Thailand's just follow along with the Bigs like the British Pound, US Dollar, Japanese Yen, Euro, ect.

[Jeff1]

I have to agree , the dollar is getting stronger.

However I have been watching this for a few year's and I see you get less baht for the dollar in " winter " months . So I think that there are alot of different factor's at work here .

[ChiangMaiThai]

Despite fluctuations, the general drift is downwards, for now.

Indeed, for now. Just a short while back, it seemed to be a foregone conclusion by many that the baht would soon be at the 35 baht/dollar level. So who really has a clue as to how any of this exchange rate stuff is going to work...?

I remember all the talk about that awhile back. Like a lot of talk here, it didn't turn out to be true, did it?

[Boon Mee]

Forget the US$ the Baht is 76.07 to the Pound and 50.68 to the Euro!

That's fine if you don't get paid in Greenbacks!

[Rinrada]

And if you have the dosh then go for it.

Just been reading about the latest financial situation in the UK.

The most recent estimates on the populations incomes/outgoings show that we are up to our eyeballs in hock to to tune of ....£1 Trillion. (mortgages,credit cards etc.)

That works out at @ give or take the odd Sov. at £ 17,500 per person,man,woman kids and babies,dog and cat... which to equate to in Thai Bt terms means that the Average UK (wots that?) family owes approx Bt 5,000,000.

At the same time due to all (some) expats happily paying rip off ATM machine fees and recieving tourist rate exchange deals the British Banks have just posted a 6 month profit of £17 Billion...smackeroos nice job if you can get it.

This morning British Airways has bunged up their fuel surcharge to £12 each way on all long haul flights (O No back to Bin man) and guess wot ...nobody bothers?/.

A litre of 4 star can be over a £1 a slurp which is about the same as one stop on a London bus.....and nobody bothers..(Number 116 from The-parr-ack to the end of Silom ...ha bt.)

So for the majority the fact that the £1=76Bt or 176 Bt nobody really bothers.

If you have the odd quarter of a million pounds to chuck about (aver. price in smoke for a gaff) would you want to buy baht? or would you prefer poss a little place in Spain where at least you can own the joint,resell it when you want to and even get real dosh back in return and maybe even turn a profit on your investment

Sorry not going about sucking eggs ....its Monday morning and its raining

[Dickie]

When I move to LOS I want the baht to be weak as brewer's droop so my good old quid can buy lots. Once I'm there I can't be arsed what happens to it.

Interesting! When I originally typed the h-e-l-l word this system replaced it with ######. There some kind of censorship built into it?

[TRIPxCORE]

For a current rundown of what is happening re: currencies, read here-------

Greenspan's credibility???...

Good day... As predicted, the US$ dropped dramatically Friday after the

payroll data disappointed the markets posting just 32,000 jobs for the

month of July. Most of the accompanying data was also negative, with

June's number revised downward to just 78,000 jobs and YOY average

hourly earnings slowing to 1.9% from 2%. A bright spot was the official

unemployment rate for August which reportedly fell to 5.5% from 5.6%.

News of the surprise jobs data even reached Chuck Butler who was

vacationing down in Southeastern MO. He emailed me this morning with

the following comments: "So... only 32k jobs last month, eh? and last

month was revised down to 78k... Hmmm... looks like all those "ghost"

jobs the Bureaur of Labor Statistics added a few months ago that got the

dollar bulls all lathered up, are coming home to roost! If you take out

the months where the BLS added ghost jobs, the jobs creation in this

country is abysmal. And that, I feel is strongly tied to the fact that

the dollar won't budge from the 1.20 ish range... It needs to get much

weaker and then manufacturing can enjoy a rebound, and begin to hire

again."

As usual, Chuck hit the nail on the head (unlike Big AL!) The latese

economic data definitely calls into question Greenspan's credibility.

His SIRT (Stupid Interest Rate Talk) rallied the dollar over 3% two

weeks ago, but the folks who compile the economic data must not have

been listening. Right about now is when we could see Mr. Greenspan jump

back in with some more SIRT to reverse the downward spiral of the

dollar, but The markets have already assumed an interest rate increase

after tomorrows FOMC meeting, but now a further increase in September is

coming into question.

Chuck had some comments on this also: "I see where the Fed funds guys

are saying the Fed will keep to its rate hike this month, but forego the

one for Sept. I will love to hear what Big Al has to say if he does keep

to this month's rate hike... He's got pie all over his face right now,

and is looking pretty silly... Another rate hike right now, just makes

him look sillier, if that's possible!"

With Greenspan's credibility at question, U.S. Treasury Secretary John

Snow picked up the torch and tried to slow the decline of the dollar

with talk of future US growth. "The economy has gone through a pause,

but we are looking to growth rates that are very strong, and job

creation that will be very substantial," Snow said in an interview with

NBC Television's TODAY program on Saturday. Perhaps he confused our

economy with that of England, whose recent economic data actually

support statements such as these.

The Bank of England will likely rais its economic-growth forecast for

the next 12 months as manufacturing recovers and consumer debt reached

records, suggesting interest rates will rise further. The bank's policy

makers will publish quarterly estimates of gross domestic product and

inflation this Wednesday both of which should support a further increase

in British interest rates. The positive interest rate differential

along with an expanding economy (with data to prove it) keep the Pound

Sterling one of our top picks along with the New Zealand Dollar and

Australian Dollar.

Speaking of the currencies from 'down under', the Australian dollar rose

to its highest in more than two weeks after the central bank said it may

need to raise interest rates to restrain domestic spending and

inflation. The Reserve Bank of Australia said "It would be surprising

if Australian interest rates did not have to increase" in its quarterly

monetary policy statement. After being one of the first to raise rates

late last year, the RBA has kept them stable this year putting pressure

on the AUD$ after interest rate increases in NZD and the US narrowed the

interest rate differential. With export markets in Asia continuing to

expand and a September interest rate increase in the US now in question,

the AUD$ will most likely test its previous yearly high of .80 and

should trade through it by year end.

The New Zealand dollar is also climbing back toward it's previous yearly

high of over .70 and should also be through this level by year end.

Sounding like the definition of a prudent central banker, Reserve Bank

of New Zealand head Bollard justified his four interest rate increases

this year, writing that inflation pressures are "pervasive," in a letter

published in the National Business Review. The markets are now

expecting a fifth hike on September 9 giving the Kiwi support vs. the

US$.

China's central bankers have undoubtly been watching and learning from

the fiascos of Greenspan and the steady hands of Bollard. The bank

announced China's inflation rate probably will accelerate in the third

quarter and begin to slow in the last three months of the year. The

Renminbi will be kept 'stable' it said. Economic growth will slow

slightly from a year earlier due to success in the economic measures

taken earlier this year. We expect China to continue to grow at close

to a 9.6% rate supporting the commodity markets and exports from the

commodity driven currencies of AUD, NZD, and ZAR. The Commodity Index

CD, along with the Prudent Central Bank CD are our top picks for the

WorldMarkets CDs.

Currencies today: A$ .7163, kiwi .6540, C$ .7617, euro 1.2260, sterling

1.8409, Swiss .7964, rand 6.103, krone 6.79, forint 201.354, zloty

3.575, koruna 25.71, yen 110.60, baht 41.40, pesos 11.39, and gold...

$398.75

[igotworms]

A weak Thai baht is not cause for alarm but instead one for celebration for Thailand as a whole.

It's one of the basic understandings of international economics that a weak currency is good for a country.  This means stuff is cheaper for foreigners to buy so you spur your economy with foreign demand (exports).

This is why the Bank of Japan spends billions on keeping its currency weak.  This is why China refuses to let its currency float but instead keeps it pegged at a weak level.

Of course, there are winners and losers, but the net effect is increased demand and economic growth. 

Sometimes banks do risky things like lending baht which must be paid back in dollars and this causes problems if the baht crashes, but the problem is the careless lending practices more than the currency fluctuations.

"Weak" really is good, and "Strong" is bad.

One negative effect of a weak or weakening dollar (baht) is the tendency for industrial decline in productivity and development. Granted, various industries will profit from a weakened currency, especially the natural resource sector, as foreign investment increases, however, companies must increase productivity by investing heavily in research and development. Innovation, adapability and increased productivty are essential for companies to maintain demand during periods of a strong currency. Too often companies rely on a weakened currency to attain profit but fail to compete in a strong and diverse economy.

For continued long-term growth, a nation should prefer a strong currency that installs investor confidence and promotes innovation through increased productivity and competition.

[Dancali]

"For continued long-term growth, a nation should prefer a strong currency "

This goes against the opinion of most economists, central banks, governments etc.

Increased productivity and competition are certainly important, and there could be some correlation between a currency's strength and the level of competitiveness, but to say that this is somehow more important than the gargantuan effects of increased export demand from a weak currency is not right.

You're saying that I shouldn't take the job that pays me $100,000 a day because I might get a little lazy if I ever lose that job and have to settle for a more reasonable wage. I think most would disagree with this advice.

Or perhaps Saudia Arabia should promote solar energy to the world lest it gets too complacent with its oil sector.

Nobody advocates an unstable currency with high volatility, but a weaker currency is preferable to a strong currency.