Baht Exchange Rate..wtf?

[chuchok]

I have a question for you money people.

The Baht is dropping against the USD.

The Baht is increasing against the Aussie and the NZ dollar.

Both the NZ and Aussie dollar have been on a steady increase against the greenback for the last 6 months or so.

I know currencies can be affected by oil prices,employment rates,wars and disasters etc, but why is the baht going this way.

Why then does the baht weaken against the greenback and then the antipodean currencies take a hit?

Any answers would be appreciated.

[Harmonica]

Chuchok,

Technical explanation only .... the relationship of one currency to another is unique and if one tries to extrapolate from its relationship to that of other currencies, one can get confused pretty quickly -- confusions such as those you've stated are readily seen in the currency world.

Playing currencies in pairs requires one to study just that pair -- independently.

The Baht versus the USD can and sometimes is a very different animal versus asian currencies or aussieD (or Nzd).

I keep charts of the Baht/USD & Baht/Yen and follow them regularly -- a divergence between the 2 is very telling of the stock market's direction in LOS.

If I've failed miserably in answering your question or have confused the issue even further, I'll try again tomorrrow -- too tired now. Regards

[chuchok]

Yep, I know what you are getting at.

To give you more on what I mean, both the Euro and the Pound have hammered the Baht since the tsunami hit.

The opposite has occured with the NZD and AUD.

Both the NZ and Aust economies have been blasting along.... reasonably low interest rates etc. As I said above, both these currencies have gained significantly against the USD.

The only reason that I can think of, is that both countries have either signed or is about to sign a free trade agreement???

Anything further that you can add would be great.

Edited January 21, 2005 by chuchok

[TizMe]

The Baht, AUD, NZD and USD are all floating exchange rates. That means there is no set value for the currencies compared with any other currency. The exchange rate is affected by supply and demand for currency in international exchange markets. If demand exceeds supply, the value of the dollar will go up. If the supply exceeds demand, its value will go down.

Several factors influence the supply of, and demand for, currency. If interest rates are higher in country A, then investors may choose to invest in country A, increasing demand for that currency, provided that the expected rate of inflation is not higher in country A than among its trading partners. If the inflation rate is higher, investors are less likely to prefer country A—even with higher interest rates—because of the expectation that the value of the currency will be eroded by inflation.

The trade balance also affects the value of the currency. If world prices for exports rise in comparison with the cost of imports, country A will be earning more for exports than we paying for imports. The more favourable these "terms of trade," the more demand there will be for the country A currency.

If investors are confident that the country A's economy will be strong, they will be more likely to buy country A assets, pushing up the currency's value.

Just because we have seen recent movements in currency valuations doesn't mean that the trend will necessarily continue.

[Serendipitist]

Yep, Tizme be right. Nothing unusual.

Or to put it another way:

It's all due to speculative hedge plays by institutional traders who've got nothing better to do with their liquidity than move the currency markets...

[Harmonica]

>>>>> Anything further that you can add would be great. <<<<

Have been steadily using the strong Baht vs USD to convert into USD -- that is what I am holding now and as implied, I'm expecting a trend reversal in USD. No AussieD, NzD or Euro -- its the Dollar's year. Yeah, yeah, I know NOBODY here agrees with this call.

[fire and ice]

Yep, Tizme be right. Nothing unusual.

Or to put it another way:

It's all due to speculative hedge plays by institutional traders who've got nothing better to do with their liquidity than move the currency markets...

This is nonesense - SPECULATIVE and HEDGE are total opposites - the first is where you are essentially gambling (raking a risk) on future rates to make a profit/loss and the latteris where you buy/sell forward to lock in a guaranteed future rate in order to avoid any risk at all.

Also there is this idea that currency traders making gambles on future exhange rates drastically affects exchange rates - this is nonesense - they have relatively little effect, the major causes are world trade, international investment, interest rates and central banks (although since central banks "set" the interest rates this is essentially one factor). Only in cases like where Nick gleeson (or whatever his name was) from Barings buys like 900 million$ worth of Yen etc... do specualtors have much affect.

It would be more accurate to suggest specualtive investors having a substantial affect on exahge rates (ie: people investing into assets within a country not just the currency).

[~G~]

Also there is this idea that currency traders making gambles on future exhange rates drastically affects exchange rates - this is nonesense - they have relatively little effect...

It would be more accurate to suggest specualtive investors having a substantial affect on exahge rates (ie: people investing into assets within a country not just the currency).

<{POST_SNAPBACK}>

Well, when you follow what happens 2 seconds before and after a major piece of data is published, for example, change in percentage of employed personal in the US, you see that these traders have an enormous effect, at least in short-term currency trade. Sometimes over 1% change in an hour.

[peter991]

Very interesting. I have also been keeping a close eye on the number of Thai baht to the Australian dollar. I get a daily email update from http://www.xe.com/ucc which you can use to check the relationship between the two. Three years ago, I got around 20 baht to the Aussie dollar. Last July it was close to 30 baht to the $AU1.

I am coming back to Thailand in a couple of weeks and I have noticed that despite the Aussie dollar buying around 78c US, the baht is slowly dropping.

Scarier still, Stickman Bangkok's column LAST week hinted at at the baht being revalued. Looks like later in 2005 we might only get 20 baht (or less!) for each Australian dollar.

30 to the dollar...

The Thai baht has been undervalued for a long time (some say by 30%) and it is generally expected in global financial markets today that as soon as China unpegs its Yuan (widely expected to take place in 2005), then all the Asian currencies will follow suit, the baht included. Now, when I last visited LOS in September 2004 the rate stood at 41.50 to the dollar. Today it is 39.15 - i.e., a revaluation of 6%. Should the above scenario materialize (with China) then the baht may well run north to the extent of 30% hence reaching perhaps 30 to the dollar. Just imagine what this will do to prices.

Quoted from : http://www.stickmanbangkok.com/Weekly/weekly193.htm

[Serendipitist]

Yep, Tizme be right. Nothing unusual.

Or to put it another way:

It's all due to speculative hedge plays by institutional traders who've got nothing better to do with their liquidity than move the currency markets...

This is nonesense - SPECULATIVE and HEDGE are total opposites - the first is where you are essentially gambling (raking a risk) on future rates to make a profit/loss and the latteris where you buy/sell forward to lock in a guaranteed future rate in order to avoid any risk at all.

Also there is this idea that currency traders making gambles on future exhange rates drastically affects exchange rates - this is nonesense - they have relatively little effect, the major causes are world trade, international investment, interest rates and central banks (although since central banks "set" the interest rates this is essentially one factor). Only in cases like where Nick gleeson (or whatever his name was) from Barings buys like 900 million$ worth of Yen etc... do specualtors have much affect.

It would be more accurate to suggest specualtive investors having a substantial affect on exahge rates (ie: people investing into assets within a country not just the currency).

<{POST_SNAPBACK}>

LOL thx for your most depthful & educational insights as to 'speculating' and 'hedging'. Yep... &lt;deleted&gt; would I know about trading forex! ;-)

And btw, it was Index options againt the Nikkei/Simex that Leeson arbitraged - not as you might suggest (& who TF is Nick Gleeson, if it's not Leeson you're referring to?).

Nonetheless, as for your trader's don't drastically move market's argument, don't you think that ~G~ has an extremely valid point?:

Well, when you follow what happens 2 seconds before and after a major piece of data is published, for example, change in percentage of employed personal in the US, you see that these traders have an enormous effect, at least in short-term currency trade. Sometimes over 1% change in an hour.

Sorry, but I do still believe ~G~ is right.

Edited January 24, 2005 by Serendipitist