International | Jul 05 2006
The Thai baht has been outperforming all Asian currencies including the yen over the first half of 2006, but currency strategists at Singapore-based DBS are of the view that its strength is "unwarranted".
The strategists attribute some of the baht’s recent strength to the Bank of Thailand’s policy of matching US interest rate moves, however, they flag that this is about to change with the 25 basis point rise to 5% on June 7 widely expected to be its last for the current cycle.
The BoT expects inflation to retreat over the second half of 2006 and DBS predicts the bank’s focus will switch to "arresting the slide in investor and consumer confidence hurt by the political crisis."
DBS forecasts the USD/THB to drop to 38.3 by the September quarter, and further to 38.00 by the December quarter and the slide to continue to 37.6 by the June quarter 2007, from yesterday’s 37.86.
As a result, the strategists expect the baht to start underperforming its Asian peers.
The outlook for the Taiwan dollar couldn’t be more different. With the Fed looking like it is set for a pause, DBS is of the view that the Taiwanese dollar has realigned itself with "the recent recovery in Taiwan stocks" and it sees scope for the USD/TWD to fall below 32.00 and towards 31.60 by the September quarter from yesterday’s 32.177 as interest rate differentials narrow.
By Terry Hughes
