The Curious Situation Of The Thai Baht That Refuses To Bark: Treasury View

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TREASURY VIEW

The curious situation of the baht that refuses to bark

Parson Singha

BANGKOK: -- There is a Sherlock Holmes story that involves the strange behaviour of a dog. Holmes pointed out that it did nothing at a critical plot juncture - hence revealing clues to the mystery.

From the dog that did not bark to the currency that does not move - we have recently seen an exceptional stability in the baht's exchange rate to the US dollar.

For the last two months, the baht exchange rate has been stuck in a very tight range from 30.60 to 30.80. This sustained lack of movement has few precedents over the last 10 years. In the last two months before this, the exchange rate moved between 30.60 and 31.70.

This situation also has limited parallels with regional currencies. Over the last 50 business days, historical volatility of the baht exchange rate (an annualised measure of the deviation of daily movements from the average) is at 2.4 per cent. In contrast, the Singaporean dollar is at 2.9 per cent, the Indonesian rupiah is 3.1 per cent, the Philippines peso is 3.7 per cent, and the Malaysian ringgit is at 4.5 per cent.

The baht's new-found stability reflects several key underlying factors in financial markets.

First, the global environment has been quiet since the Federal Reserve's announcement of QE3 (its latest new monetary easing programme) in mid-September.

There has been news on issues such as the Greece bail-out or the United States fiscal cliff negotiations, which are impacting sentiment on a day-to-day basis. However, there have been no really major developments on these fronts, leading to a lack of big new drivers for investors. The period immediately after the QE3 announcement saw large foreign portfolio inflows to emerging markets, but since then the flows have declined and the investor mood has become more subdued.

Second, Thailand's exports have been facing challenging times. There is a manufacturing slowdown in Asia, amid less demand from Europe and China. This means that inflows from net exports into the current account have slowed, making it less of a driver for the exchange rate.

This situation has several implications.

The reduced volatility in the currency has impacted option prices. These are measures of implied volatility - the expected future volatility of a currency. Baht option prices have been declining over the last two months. The one-month implied volatility of the baht is at around 4 per cent, compared to 4.4-4.5 per cent for most other regional currencies.

Another issue is that the factors driving this exchange rate stability are not sustainable. Global sentiment may remain quiet until the year's end, but there is likely to be more concrete developments going forward, whether from the US fiscal cliff or the recovery in major economies. Thai exports should also begin to strengthen going forward - there are already some signs that the regional manufacturing cycle is stabilising and is on the way to improving.

These factors are likely to lead to greater baht volatility in the new year, with trading dominated by shifts in global investor sentiment.

Parson Singha is Chief Markets Strategist, Global Markets, HSBC Thailand.

-- The Nation 2012-12-04

[jcw]

This post did not even get to the bottom of Central Bank Manipulation.

Bandwidth waste. The reported should be sacked.

[DeepInTheForest]

Whoohoo!! Thanks for this article, because you know, I was right on the verge of throwin' all my dough into baht options. Boy, would that have been a major booboo. Now I'll just wait a few months before doubling down on oscillations in my fave currency. Thanks again!!

Whoohoo!!

Edited December 4, 2012 by DeepInTheForest

[Moruya]

The collective term for bankers is "wunch"

[Payboy]

Could we also have the Chang guys comments for a balanced view please?

[Bagwan]

The collective term for bankers is "wunch"

Shouldn't that be 'frunch'? FRee lUNCH

The only thing that you can bank on with bankers is that they will get richer. For many of them the 'b' should be changed to a 'w'.

[tingtongtourist]

So whats he trying to say??

That Thailand is the HUB of sound fiscal and economical management?

Miss Yinluck proove this to us already, not even she, her brother or her government can cause this baht to drop

[cheeryble]

This post did not even get to the bottom of Central Bank Manipulation.

.....perhaps you could tell us more (only if it's evidence based please).

BTW I don't believe anyone with such a wonderful name as Parson Singh should ever be sacked.

Edited December 4, 2012 by cheeryble

[Artisi]

Now that's the best news in months, I'll bet nearly every Thai person is now jumping for joy at such good news.

[moe666]

Give the rrice scheme a few more months to percolate and the brew will bubble over

[Moruya]

The collective term for bankers is "wunch"

Shouldn't that be 'frunch'? FRee lUNCH

The only thing that you can bank on with bankers is that they will get richer. For many of them the 'b' should be changed to a 'w'.

You never heard of a wunch of bankers?

[TheGhostWithin]

The baht is stable because it is free floated, but manipulated by the reserve bank of thailand, amd has been for years. Some within thailand (exporters for example) want a weak baht, whereas importers prefer a stronger baht.

I would speculate that a strong baht now with a fall later will look good when all that rice gets exported, it won't take as long and will sell at higher baht rates (but lower usd rates) per tonne.

It will also make flights frkm dubai cheaper later as Tg has their base currency in baht... the weaker the baht, the cheaper Thai Airways tickets are.

[Hunter88]

Everything else is rigged in Thailand so why not the Baht?

[HerbalEd]

Whoohoo!! Thanks for this article, because you know, I was right on the verge of throwin' all my dough into baht options. Boy, would that have been a major booboo. Now I'll just wait a few months before doubling down on oscillations in my fave currency. Thanks again!!

Whoohoo!!

It's not as though what this article says will actually come true. Maybe it is ... maybe it isn't. Even the so-called experts disagree.

[bigbamboo]

Why the whinge?

A stable currency is generally a good thing.

[Payboy]

It will also make flights frkm dubai cheaper later as Tg has their base currency in baht... the weaker the baht, the cheaper Thai Airways tickets are.

Sorry, no can do. The weaker the baht, the higher the fuel surcharge by TG.

[lineofentry]

The Gov't and biz working together to manipulate exchange rates in a planned manner and therefore maximise profits for the benefit of the country as whole? This is a sign of superior intelligence, but don't talk about it.

[IMA_FARANG]

So tswha he trying to say??

That Thailand is the HUB of sound fiscal and economical management?

Miss Yinluck prove this to us already, not even she, her brother or her government can cause this baht to is to us already, not even she, her brother or her government can cause this baht to drop

----------------------------

No, he's trying to tell you quietly that the current "stability" of the Thai baht is an illusion, and is likely to change soon,

Make up your own mind whether he thinks the Thai baht will get stronger or weaker.

If I had the money to make a choice (and I don't have that money anyhow) I'd bet the Thai baht will get weaker as my personal opinion is that the Thai baht is over valued right now.

And yes, it's being kept there by central bank manipulation, How long it will stay over valued...... who knows?

Edited December 5, 2012 by IMA_FARANG

[IMA_FARANG]

If you know the Sherlock Holmes story you will remember:

1, A crime was committed,

2, The watchdog did NOT bark although he was trained to bark at any strangers,

3. Holmes therefore concluded that the person who probably committed the crime was NOT a stranger to the watchdog .... because the dog did not bark.

So if the baht is artificially high.....and the watchdog is NOT barking,,,,, then what can you deduce from that fact?

[ThaiTerry]

The collective term for bankers is "wunch"

I prefer BANKSTERS

[Thai at Heart]

So tswha he trying to say??

That Thailand is the HUB of sound fiscal and economical management?

Miss Yinluck prove this to us already, not even she, her brother or her government can cause this baht to is to us already, not even she, her brother or her government can cause this baht to drop

----------------------------

No, he's trying to tell you quietly that the current "stability" of the Thai baht is an illusion, and is likely to change soon,

Make up your own mind whether he thinks the Thai baht will get stronger or weaker.

If I had the money to make a choice (and I don't have that money anyhow) I'd bet the Thai baht will get weaker as my personal opinion is that the Thai baht is over valued right now.

And yes, it's being kept there by central bank manipulation, How long it will stay over valued...... who knows?

Overvalued versus what?

There is still a long way to go in Europe and the usa still has its fiscal cliff to solve.

The baht isn't likely or wanted to devalue any time soon.

[tonbridgebrit]

Most of us British people do remember the good old days when the pound was worth over sixty three baht, this was back in 2007 or 2008. Anyway, as we all know, the pound quickly became fifty baht and then onto the prsent forty eight baht. Most Europeans with their euros remember something similar.

It does make a few people laugh when we think back to some of the silly posts on Thai Visa, all that talk about how the Reds are now in power, how a bunch of silly Thais are going to cause the baht to crash through the floor !!

Posts like, "sixty baht to a pound, here we come, these Thais do know how to shoot themselves in the foot" !!!!

Obviously, all those predictions have been shown to be a load of nonsense. And hey, if rich Thais and foreigners here in Thailand have lots of baht, well, they can easily change their baht into whatever foreign currency, wait for the baht to crash, and then buy their baht back. That's how you're suppose to make money on foreign currency ??

And those Brits and Europeans who changed their money in baht in the olden days to buy a house or whatever, in Thailand or Laos, thank your lucky stars ! People will be waiting a long time to get back to those currency rates, maybe for the rest of our lives !!