I plotted the trends during the last five years for the Thai baht, the Swedish krona (being a Swede) and the Euro vs the US dollar and the Nasdaq index (see graph).

Some pretty interesting trends from the graph:

- Strengthening baht, krona and euro vs the dollar until late summer 2008 culminating with the Lehman crash.

- Strong outperformance by the Thai baht after the crash.

- Strong correlation between the Thai baht and the USD compared to the other currencies.

- As the general risk level increases, the stock market falls and the Swedish krona and the euro with it - the Thai baht ouperforms. And vice versa.

Is the Thai baht a solid refuge currency?

That is an interesting observation and question. It might be interesting to see where the Singapore dollar fits into the picture, mainly because it is such a "well managed" currency.

I think the baht is a hard enough currency that people who want wide global currency exposure ought to own some. Whether a lot or a little will depend on investment inflows. Here's an announcement I'll bet the Commerce Ministers of those hard currency countries wish they were making:

MOC: Thai exports to grow 17-18 pct in 2010

http://www.nationmul...0-30133110.html

I would think it will get harder for the Central Bank to justify not raising rates soon.

I would think it will get harder for the Central Bank to justify not raising rates soon.

I would have thought the same thing true for the US fed, but who knows what any government will do. If the Thai CB raises rates and the US embarks on QE2 it would be a good idea for US expats to have lotsa Baht. Before the US implements capital controls.

The Bank of Thailand makes an effort to keep the baht stable/not climbing or falling fast against other currencies primarily to help Thai exports, and with emphasis on not letting the baht gain/fall too much/fast against the U.S. dollar. It's almost like a loose/semi peg to the dollar...but a peg that has been getting looser. This may explain the dollar and baht correlation.

The Bank of Thailand makes an effort to keep the baht stable/not climbing or falling fast against other currencies primarily to help Thai exports, and with emphasis on not letting the baht gain/fall too much/fast against the U.S. dollar. It's almost like a loose/semi peg to the dollar...but a peg that has been getting looser. This may explain the dollar and baht correlation.

Personally while this statement is broadly true, I think it is a little misleading. There is certainly a 'dirty peg' but I believe, it is designed more around the Yuan than the dollar. Obviously with the yuan pegged to the dollar there is a very close correlation with the dollar.

The charts are a little misleading on the basis that they are US$ dollar charts.

To me the key thing to note in the chart is the divergence of the baht with the US$ dollar over the last six months. Normally when the dollar is strong, the baht underperforms but over this period it has outperformed all currencies. My view is that they let this happen because they had spent so much trying to stop the baht appreciating they had essentially run out of money and also given the very strong growth, they were less worried about growth and more worried and inflation.

The trouble is without knowing the how and to what end they manipulate the value of the Baht it's very hard to draw any strong inferences from it's value.

Firstly with fairly strong growth figures you would expect the Baht to appreciate against the dollar. Other possible explanations for the divergence in the last 6 months could be that they are moving focus away from maintaining stability with the dollar or that they are targeting stability with a basket of currencies in which the dollar has declined in value. Or it could be that there hasn't actually been any significant intervention and the dollar has declined. Again it could be that the market is expecting the government to intervene to reduce value against the dollar and buy Baht so that they cash in when it happens.

The trouble is without knowing the how and to what end they manipulate the value of the Baht it's very hard to draw any strong inferences from it's value.

Firstly with fairly strong growth figures you would expect the Baht to appreciate against the dollar. Other possible explanations for the divergence in the last 6 months could be that they are moving focus away from maintaining stability with the dollar or that they are targeting stability with a basket of currencies in which the dollar has declined in value. Or it could be that there hasn't actually been any significant intervention and the dollar has declined. Again it could be that the market is expecting the government to intervene to reduce value against the dollar and buy Baht so that they cash in when it happens.

Well actually we know exactly how they have been intervening because (1) they show the current currency mismatch on their balance sheet and (2) publish their forward positions - both on a weekly basis. They also show their domestic bond issuance to sterilize at least a month in advance.