Thailand’s baht dropped the most in three months on speculation the central bank will intervene to slow gains that may hurt exports. Government bonds advanced.
The baht has rallied 6.2 percent against the dollar this year, the most among Asia’s 11 most-traded currencies. It has started to move beyond its fundamentals, central bank Governor Prasarn Trairatvorakul said April 19, while Assistant Governor Paiboon Kittisrikangwan said yesterday the baht has risen “too much and too quickly.” The dollar’s 14-day relative strength index was below 30 since April 16 through yesterday, the threshold that suggests to some traders the baht’s gains have been excessive.
“A sharp appreciation is hurting exports, while those central bank comments are causing concern about possible intervention,” said Hideki Hayashi, a researcher at the Japan Center for Economic Research in Tokyo. “There must be some profit-taking from the baht’s recent gain as well.”
The baht dropped 0.4 percent, the most since Jan. 25, to 28.80 per dollar as of 3:04 p.m. in Bangkok, according to data compiled by Bloomberg. The currency touched 28.56 yesterday and on April 19, the strongest level since a devaluation in July 1997 that sparked the Asian financial crisis.
Overseas investors bought $2.1 billion more local sovereign bonds than they sold this month through yesterday, adding to net purchases of $9.8 billion in the first quarter, Thai Bond Market Association data show.
Finance Minister Kittiratt Na-Ranong said he disagrees with suggestions that the country should buy dollars to ease pressure on the baht. “We can’t buy to fight against the inflow,” he told reporters in Bangkok today. Kittiratt has asked the central bank to adjust interest rates, which encourage capital inflows, he said. Thailand’s policy rate of 2.75 percent compares with a maximum of 0.25 percent in the U.S. and 0.1 percent in Japan.
Exports, which account for about two-thirds of Southeast Asia’s second-largest economy, increased 4.6 percent in March from a year earlier after declining 5.8 percent in February, according to a government report today. The median estimate of economists in a Bloomberg survey was for a gain of 2.3 percent.
“The basic trend remains for the baht to gradually rise on fund inflows due to the solid economic outlook,” Hayashi at the Japan Center for Economic Research said.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 11 basis points, or 0.11 percentage point, to 5.48 percent.
The yield on the 3.625 percent government bonds due June 2023 declined two basis points to 3.39 percent. The Bank of Thailand sold 25 billion baht ($868 million) each of 28-, 91-and 182-day bills today. The government plans to auction 17 billion baht of debt due 2017 and 7 billion baht of notes maturing 2027 tomorrow.