Baht Trades Near 10-Month High on Recovery Optimism; Bonds Drop

Thailand’s baht traded near a 10- month high after U.S. lawmakers resolved a budget deadlock and signs of a global economic rebound brightened the outlook for the Southeast Asian nation’s exports.

The currency jumped 0.8 percent yesterday, the most since Sept. 14, after the U.S. House approved legislation undoing tax increases for more than 99 percent of households in the world’s largest economy. Foreign funds bought a net 738 million baht ($24.3 million) of Thai stocks on Jan. 2, after $2.5 billion of net inflows in 2012. Reports this week showed a pickup in American manufacturing and China’s service industries.

“We see earnings upgrades as the economic outlook gets better, supporting inflows,” said Thammarat Kittisiripat, an economist in Bangkok at TMB Bank Pcl. (TMB) “The appreciation trend is there but short-term risk” still remains as U.S. budget discussions continue, he said.

The baht rose to 30.35 per dollar in Bangkok versus 30.36 yesterday, according to data compiled by Bloomberg. It climbed as high as 30.29 earlier. The exchange rate may average 30 in 2013, Kittisiripat said.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, rose to 4.03 percent, the highest level since Dec. 17, from 3.68 percent yesterday.

China’s service industries grew in December at the fastest pace in four months, official data showed today. The Institute for Supply Management’s U.S. manufacturing index rose to 50.7 from a three-year low of 49.5 in November, the Tempe, Arizona- based group said yesterday. Fifty is the dividing line between expansion and contraction.

Bonds Decline

Government bonds fell for a second day on speculation faster inflation reduces the odds of an interest-rate cut when the Bank of Thailand reviews policy on Jan. 9. The central bank held its one-day repurchase rate at 2.75 percent at the last meeting on Nov. 28. Consumer prices in Southeast Asia’s second- largest economy climbed 3.63 percent in December from a year earlier, compared with 2.74 percent in November, the commerce ministry said yesterday.

The yield on the 3.875 percent government bonds due June 2019 rose one basis point, or 0.01 percentage point, to 3.3 percent, according to data compiled by Bloomberg. It touched a one-month low of 3.23 percent on Dec. 28.

“The rate-cut cycle is probably over for Thailand,” said Eugene Leow, an economist in Singapore at DBS Group Holdings Ltd. “The economy has a few things going for it in 2013 and inflation could become a problem from the third quarter.”

To contact the reporter on this story: David Yong in Singapore at dyong@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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