Thai Baht Has Worst Week Since 2006 on Outflows; Bonds Decline

Thailand’s baht had its worst week since December 2006 on speculation outflows from emerging markets will quicken as the Federal Reserve prepares to cut monetary stimulus. Government bonds dropped.

The currency touched a three-year low of 32.17 yesterday. Global funds sold $917 million more of Thai bonds than they bought this month through yesterday, and pulled a net $903 million from equities, official data show. Thailand’s National Economic and Social Development Board cut its 2013 growth forecast on Aug. 19 as the nation entered recession for the first time since 2009. Policy makers were “comfortable” with a plan to pare stimulus, minutes of the Fed’s July meeting showed.

“Funds are flowing out from emerging markets, weighing on the regional currencies,” said Koji Fukaya, chief executive officer and foreign-exchange strategist at FPG Securities Co. in Tokyo. “The contrast is becoming clearer between the U.S., where the economy is recovering, and slowing growth in emerging countries.”

The baht slumped 2.2 percent this week, the most since the period ended Dec. 22, 2006, to 31.98 per dollar as of 3:10 p.m. in Bangkok, according to data compiled by Bloomberg. The currency rose 0.4 percent today after the dollar’s 14-day relative strength index versus the baht stayed above 70 since Aug. 20. The threshold suggests to some traders the baht’s depreciation was excessive.

“A recovery in the world’s largest economy means recovery in external demand for emerging nations,” FPG’s Fukaya said. “When you think about that, then recent declines probably offer a good opportunity to buy on dips.”

Fed Minutes

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 129 basis points, or 1.29 percentage point, this week to 7.28 percent. The gauge rose five basis points today.

The number of American jobless claims in the month ended Aug. 17 declined to 330,500 a week on average, the least since November 2007, a Labor Department report showed yesterday. Fed officials backed Chairman Ben S. Bernanke’s plans to start reducing bond buying later this year should the U.S. economy improve, with a few saying tapering may be needed soon, minutes of the July meeting showed this week.

Thailand’s gross domestic product unexpectedly decreased 0.3 percent in the three months through June from the previous quarter, when it contracted 1.7 percent, the National Economic and Social Development Board said Aug. 19. The agency cut its 2013 expansion forecast to between 3.8 percent and 4.3 percent from an earlier estimate of 4.2 percent-5.2 percent.

Overseas Sales

A government report next week will show exports rose 1 percent in July after declines of 3.4 percent in June and 5.3 percent in May, according to the median estimate in a Bloomberg survey of economists. Thailand posted a current-account deficit every month in the second quarter, central bank data show.

Morgan Stanley is bearish on the baht’s outlook and Citigroup Inc. is underweight on the currency, according to research reports published yesterday. Goldman Sachs Group Inc. cut the currency’s three-month forecast to 33 per dollar from 31.3, the bank said in a note today.

The yield on the 3.625 percent sovereign notes due June 2023 jumped 22 basis points from a week ago to 4.2 percent, data compiled by Bloomberg show. That’s the biggest increase since the five days ended June 21. The rate declined three basis points from yesterday’s close that was the highest since the securities were issued in 2010.

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