Thai baht skyrockets with other Asian currencies

Baht & other Asian currencies strengthening in value due to changes in US & European economies & is a sign of a healthy economy with strong fundamentals.

CURRENCIES

Strong baht ok: Economy strong, Asian neighbours surging too

Movement in line with Asian currencies' trend
21/03/2017
Pawee Sirimai

The baht rose to 34.66 to the US dollar at one point Monday, its strongest level since early October.

The US central bank (the Fed, Federal Reserve) last week raised its policy interest rate (policy rate) by a quarter point for the third time since 2015.

At the same time the Fed signalled a less hawkish stance on future rate hikes this year (meaning the Fed is less likely to raise the policy rate in the near future).

The US dollar has depreciated against all Asian currencies recently, which means Asian currencies have all risen broadly (appreciated) against the US dollar, just as the Thai baht has risen.

The Taiwan dollar hit its highest level in 22 months, the Japanese yen was its strongest in three weeks, and South Korea's won reached a five-month best.

WHAT DOES 'RISING BAHT' & STRONGER BAHT MEAN?

It is worth reviewing for a moment, what this all means.

Currency appreciation (stronger baht, baht rise, baht surge) means an increase in the value of one currency in terms of (converted into, exchanged for) another currency.

For example, baht appreciation (with respect to the US dollar) means a holder of baht gets more dollars for baht.

The baht exchange rate is usually expressed in terms of the other currency so a rise is actually a fall which makes thinking about it a little tricky.

In the last week the Thai baht has moved from around 35.35 baht to a dollar to around 34.60 baht to a dollar (see chart).

This obviously means that dollar holders got less baht but also that baht holders got more dollars for their baht which means an increase in value for the baht (stronger baht, baht rise, baht surge).

It is also good to remember that if the baht gets too strong this could have a negative impact on tourism and exports because they would become more expensive for foreigners and thus less attractive to purchase.

The whole situation looks a little different, if viewed from the timeframe of one month (graph below) or year (graph at bottom) (for more on this subject, see here & here):

OFFICIAL STANCE: STRONGER BAHT NOT A PROBLEM

"The stronger baht that has been observed recently reflects Thailand's strong economic fundamentals, so we should not panic over it," said Finance Ministry permanent secretary Somchai Sujjapongse.

The strengthening baht is in line with the economy's fundamentals and no intervention by the central bank is needed, he said.

Economic indicators such as the unemployment rate, fiscal position and government revenue are all solid, supporting confidence in the Thai economy and the currency's run-up.

"As the baht has appreciated in line with economic fundamentals, it won't be necessary for the Bank of Thailand (BoT) to intervene in the market too much," he said.

It is better to let the baht move according to the market mechanism, he said, though the baht shouldn't be too strong or too weak relative to its peers in the region.

PAST THAI CENTRAL BANK INTERVENTIONS

The Thai central bank has occasionally stepped into (intervened) the currency market to keep the baht from rising rapidly against the greenback (US dollar).

Thai foreign reserves, regarded as a proxy for central bank intervention, surged to US$180 billion on March 10 from $171.9 billion on Dec 30, while the baht has strengthened by about 3% this year.

CAPITAL FLOWS CAUSED BY EXTERNAL FACTORS

Mr Somchai said the Finance Ministry is confident that the central bank will be able to manage capital flows effectively.

"This [capital movement] is not happening for the first time, and we know that it was caused by external factors, mainly changes in the US and European economies," he said.

PREPARED: HIGH FOREIGN RESERVES, LOW FOREIGN DEBT-TO-GDP, LOW PUBLIC DEBT 

Thailand is well-prepared to deal with fluctuations in the Thai baht because the country has high foreign reserves and both the foreign debt -to- GDP ratio and public debt remain low, he assured.

"We [Thailand] have the instruments and ability to cope with these capital flows efficiently," Mr Somchai said.

http://www.bangkokpost.com/news/general/1218357/official-baht-surge-fits-fundamentals

https://www.xe.com/currencycharts/?from=USD&to=THB&view=1Y

https://www.xe.com/currencycharts/?from=USD&to=THB&view=1M

https://www.xe.com/currencycharts/?from=USD&to=THB&view=1W

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