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11 May 2009

Financial Markets

Baht Soars Sharply, But Remains Volatile (Business Brief No.2501)

The Baht is back in the limelight after rising sharply during the first two weeks of April 2009. In the most recent developments, the Baht breached the key resistance level of Baht 34.80/USD to test Baht 34.60/USD - the highest level in four months. The strengthening Baht, however, is in line with other regional currencies that have benefited from US Dollar sell-offs amid higher risk-taking by investors since mid-March.
KASIKORN RESEARCH CENTER (KResearch) forecasts that the Baht, for the near future, may continue to be bolstered by several factors. Over the short-term, it may test the THB34.50/ USD level. Even so, we should keep a cautious watch on the US Dollar trend, as well as our trade and current account balances and the Bank of Thailand's forex policy stance – all of which may affect the Baht trend.
Despite the Baht's recent rapid appreciation, KResearch holds the view that all parties concerned, i.e., investors, exporters-importers and the policymakers should brace themselves for volatility in the Baht given that a global economic recovery by this year-end, as forecast by many, needs to be supported by positive economic indicators from major economies. Meanwhile, financial markets seem to have rapidly factored in the positive signs though lingering financial apprehension may be overlooked. The revelations of US bank stress tests that were in line with analysts' projections helped alleviate concerns somewhat about the US financial sector. However, the US banking sector remains plagued by deteriorating assets as a result of the crisis. Against this backdrop, the stronger Baht that was boosted by our current account surplus and the trends of other currencies, may occasionally be tested, in particular, if profit-taking occurs in the US stock market and elsewhere.

Meanwhile, Thailand's trade balance over the remainder of this year may not show a large surplus as experienced in the first quarter. Data in some months may even record deficits if imports accelerate. In addition, the US economic and financial situation must be closely monitored by investors to ascertain if the worst is truly over, as the market perceived last week. Market volatility will thus be a key challenge to Thai exporters and importers. The BOT, meanwhile, may have to maintain the Baht's stability to reflect our fundamentals.

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