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Baht Falls as Gains Judged Excessive; Bonds Rise on Fund Inflows

March 18 (Bloomberg) -- Thailand’s baht fell from its highest level since July 1997 after a technical indicator signaled the dollar was poised to rebound. Government bonds rose.

The currency weakened as the greenback’s 14-day relative-strength index against the baht reached 29.3 on March 15, below the 30 threshold that suggested the Southeast Asian currency will reverse. It also declined as outrage in Cyprus over an unprecedented levy on bank deposits threatened to plunge Europe back into crisis and reduced demand for emerging-market assets.

“Some investors probably took profit” from recent gains and “used the news on Cyprus as an excuse,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl. “The market is concerned about how it will handle the situation in Cyprus but it may be only a short-term move.”

The baht dropped 0.1 percent to 29.56 per dollar as of 3:08 p.m. in Bangkok, according to data compiled by Bloomberg. It earlier touched the 1997 high of 29.45. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased nine basis points, or 0.09 percentage point, to 5.05 percent.

BNP Paribas SA entered a position of buying the Singapore dollar versus the baht on March 15 at 23.68, targeting a gain to 24, because the Thai currency had overshot regional peers, according to a research report dated the same day. The city-state’s dollar held steady at 23.65 today. Thailand’s central bank won’t “easily” allow the greenback to drop below 29.50 against the baht, BNP Paribas said.

Government bonds advanced for a fifth day as international investors increased holdings. The yield on Thailand’s 3.625 percent notes due June 2023 declined two basis points to 3.6 percent, the lowest level since Feb. 27, data compiled by Bloomberg show.

Global funds bought almost $2 billion more sovereign securities than they sold last week, compared with $2.7 billion net purchases for the whole of February, according to data from the Thai Bond Market Association.

To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net

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

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