Currency hedging urged before Thai baht

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CURRENCY
Currency hedging urged before baht
Sucheera Pinijparakarn
The Nation

BANGKOK: -- Standard Chartered Bank urges traders to consider currency hedging again because the market could send the baht back on an upward trajectory by the end of this year and into next year after turning pessimistic on the US dollar's prospects.

The market had been bullish on the greenback since last year as it expected the US Federal Reserve to start normalising interest rates, making the baht and other regional currencies turn to weakness.

However, the Fed has taken no action yet. It has delayed its decision on raising interest rates because the economic data of the US do not look great.

If the Fed does not make a move this December, the US dollar bullishness will end and the Fed will hold the current rate throughout next year, Callum Henderson, head of foreign-exchange research at Standard Chartered, said yesterday.

Southeast Asian currencies will gain the most if the Fed holds rates throughout next year because the prices of commodities will pick up and exports will recover.

Global currencies will take a U-turn after the end of US dollar bullishness. The baht will turn to strength again, so businesses should prepare for the ensuing currency volatility, he said.

Usara Wilaipich, senior economist at StanChart, said that if the Fed decides to hike rates in December, the baht could stay at around 35.6 to the dollar, but if it holds its course, the unit could strengthen to 35.

The Thai currency is moving towards appreciation and has a good chance of reaching 34.75 next year, she said.

Even if the Fed decides to hold US rates throughout next year, Thailand's policy rate of 1.50 per cent is the lowest level for its economy, and the Monetary Policy Committee will keep the rate there until the third quarter of next year, Usara said.

The MPC will start taking action on the interest rate when the Thai economy shows improvement, fuelled by fiscal policy, so the policy rate will be raised in the fourth quarter of next year, she predicted.

Exports are expected to suffer a contraction of 5 per cent this year and return to growth in the range of 1-3 per cent next year, she said.

The export sector has failed to perform its role as an engine of economic growth since the 2008 financial crisis because of the slowdown in global trade and the internal structure of the export sector.

After the US-led crisis, exports enjoyed growth of 26.8 per cent in 2010 and 15.1 per cent in 2011. After that, the expansion of the export sector plunged to 2.9 per cent in 2012. It shrank by 0.3 per cent in 2013 and 0.4 per cent last year.

Usara said the shift of focus to the domestic economy under the new government economic team headed by Somkid Jatusripitak, aimed at reducing over-reliance on exports, was the right way.

The main problems for boosting domestic demand include weak purchasing power and high debt among the grass roots, who are the majority consumers in the country.

Small and medium-size enterprises are lacking working capital, so the new fiscal stimulus measures that the government is implementing are the right solution, she said.

The execution of the public investment projects will create a new normal for the economy, as public investment has been delayed for more than six years. Spending on public projects will induce more private investment.

Gross domestic product next year will run at 4.5 per cent or even higher, up sharply from the average of 2.9 per cent since 2008, Usara believes.

StanChart forecasts GDP expansion for next year at 4 per cent based on the execution of public investment projects.

Source: http://www.nationmultimedia.com/business/Currency-hedging-urged-before-baht-30270988.html

-- The Nation 2015-10-16

[Thian]

That's good news for the euro/baht.

[morrobay]

^" S.E. Asian currencies have the most to gain if Fed does not raise rates as commodity prices will increase and exports will recover" ??

How are exports going to recover with stronger currencies ?

The only thing in this article by the Nation that is a very nationalistic paper that is not mumbo jumbo is regarding those saps at the Fed holding interest rates too low. Another paper has an article in business section that

Thai economy will take 5 years to recover. If any thing the baht " should " be devalued to assist exports/recovery based on fundamentals,

instead of the saps at the Fed.

And by the way there are alot of knowledgeable economist and bankers who do want the rate increases. What happened to checks and balances here ?

Edited October 16, 2015 by morrobay

[Naam]

That's good news for the euro/baht.

don't hold your breath.

[LivinLOS]

While I agree with the analysis on a FX and geo political front..

Theres still the rather large elephant in the room.. Personally I think that for a period of time after that baht weakness will be inevitable and am keeping dry powder for then.

Edited October 16, 2015 by LivinLOS

[lannarebirth]

While I agree with the analysis on a FX and geo political front..

Theres still the rather large elephant in the room.. Personally I think that for a period of time after that baht weakness will be inevitable and am keeping dry powder for then.

I think NOW is what the time after that looks like.

[IMA_FARANG]

Sure, and will these Ex-spurts kindly explain to me how I am supposed to get the U.S. government to pay my monthly pension in something other than U.S. dollars each month.

Perhaps the U.S. government will change it's policy if I ask it nicely?

Personally I think that next year the Chinese economy will finally have to admit that even with their billions of reserve currencies to back up the currency and so-called 7% growth rate (which is a illusion using fiddled data to support it) the Chinese will come up with a real growth rate of no more than 6.8% annually for the first half of 2016.... no matter how they cheat on the 'figures".

And that is going to affect the export figures for the Thai Baht.....and it will continue to weaken.

But then I am not an ex-spurt, so what do I know?

Nor am I an foreign exchange traitor unlike some bankers I know.

[elgordo38]

^" S.E. Asian currencies have the most to gain if Fed does not raise rates as commodity prices will increase and exports will recover" ??

How are exports going to recover with stronger currencies ?

The only thing in this article by the Nation that is a very nationalistic paper that is not mumbo jumbo is regarding those saps at the Fed holding interest rates too low. Another paper has an article in business section that

Thai economy will take 5 years to recover. If any thing the baht " should " be devalued to assist exports/recovery based on fundamentals,

instead of the saps at the Fed.

And by the way there are alot of knowledgeable economist and bankers who do want the rate increases. What happened to checks and balances here ?

They talk up the baht at every given opportunity why I do not know. Could be a face saving thing. If the opposite happens all these positive comments are long forgotten. A lower baht would give exports a boost which over time would slowly boost the baht again. Like no means yes I think down means up here. It continues to amaze me how the baht hangs in there at the present. Have they discovered a cure for cancer or something earth shattering here?

[Srikcir]

I expect the Fed will hike rates in December by a nominal amount based on improved economic indicators. By that time all things being equal the Thai economy will prove out an insignificant imrpovment unlikely to repeat or do better in 2016.

However, if the EU does ban Thai seafoods due to UII and the USA places restrictions on Thai imports due to Tier 3 by year-end, it won't matter what the US Feds do with US interest rates. The Junta will achieve a sustainable collapse in the economy.

[Naam]

Sure, and will these Ex-spurts kindly explain to me how I am supposed to get the U.S. government to pay my monthly pension in something other than U.S. dollars each month.

Perhaps the U.S. government will change it's policy if I ask it nicely?

Personally I think that next year the Chinese economy will finally have to admit that even with their billions of reserve currencies to back up the currency and so-called 7% growth rate (which is a illusion using fiddled data to support it) the Chinese will come up with a real growth rate of no more than 6.8% annually for the first half of 2016.... no matter how they cheat on the 'figures".

And that is going to affect the export figures for the Thai Baht.....and it will continue to weaken.

But then I am not an ex-spurt, so what do I know?

Nor am I an foreign exchange traitor unlike some bankers I know.

i like your last three sentences because all three are "bull's eye" in context with your comment on the Chinese economy and Thai Baht.

no offence meant!

[Naam]

While I agree with the analysis on a FX and geo political front..

Theres still the rather large elephant in the room.. Personally I think that for a period of time after that baht weakness will be inevitable and am keeping dry powder for then.

in my [not so] humble view the often cited large elephant event is highly overrated.

[connda]

I'm thinking in the fiat currency world, the US dollar will be "The Last Man Standing".

[connda]

I expect the Fed will hike rates in December by a nominal amount based on improved economic indicators. By that time all things being equal the Thai economy will prove out an insignificant imrpovment unlikely to repeat or do better in 2016.

However, if the EU does ban Thai seafoods due to UII and the USA places restrictions on Thai imports due to Tier 3 by year-end, it won't matter what the US Feds do with US interest rates. The Junta will achieve a sustainable collapse in the economy.

I'll bet you a beer and a box of donuts that you're not going to see any Fed rate hike anytime in the near future. And ignore that man behind the curtain.

Thai economy? Smoke and mirrors, and getting worse, right along with the rest of the world.