Baht Drop Signals Potentially Tougher Export Times

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Baht Drop Signals Potentially Tougher Export Times

A recent report by the highly-regarded Bloomberg organization noted that the Thai Baht had fallen the most of major currencies vis-à-vis the United States dollar in a three week period leading up to the middle of August. This contraction, while government bonds rose, was claimed to be the result of concerns that the global economic slowdown is set to hurt Thailand’s exports.

The baht had dropped to 31.51 per US dollar on 15 August, its biggest loss since 23 July. Bloomberg noted its ‘implied volatility’, which is a measure of exchange rate swings used to price options, declined by two basis points. In the guarded techno-speak of the options industry this is not an economically good look. Bloomberg noted overseas investors had reduce their ownership of Thailand’s government debt by US$166 million in one day. At the same time, global funds had sold US$1.5 million more Thai equities than they purchased. Mind you, this only ended a run of six successive days of net purchases.
Perhaps the more telling point is that the yield on 3.25 percent bonds which are due in June 2017 fell by one basis point to 3.09 percent according to Bloomberg. India, Indonesia, South Korea, and Taiwan released fi gures showing slides in their overseas sales since the start of August and Thailand’s shipments had dropped in six of the eight months prior to June 2012.
Although the total value of the fi gures quoted above are hardly game changing what is important is the potential message they send about the future in both the short and longer term. A fi xed-income strategist at Societe Generale SA in Hong Kong was quoted as saying, “Weakening global growth is fi nally taking its toll on Asian exports. This in turn is likely to drag Asian growth lower, which would not bode well for regional currencies.” Through much of the period since the GFC, Asian markets have remained largely buoyant.
This was especially so with China, which has overtaken Japan to become the second-largest economy in the world during this period. Recent signs have suggested the Chinese economy is starting to feel the pressures of the weakness in Europe and now the market traders look as though they are factoring in the potential tougher export terms of trade for countries like Thailand into their projections. Naturally, the upside to all this gloom is the potential for increased tourism into the kingdom. A weaker baht as it relates to currencies such as the US dollar may help drive holidaymakers to spend time in Thailand.