The baht rose 0.5% against the US dollar to its 33-month high of 32.43 baht in early trading on Wednesday.
Thailand and India may have to give freer rein to the baht and rupee this year to avoid triggering US accusations that they’re manipulating their currencies to support exports.
The Reserve Bank of India (RBI) has already exceeded a key threshold on how much it can intervene to curb the rupee’s gains that the US monitors, according to Nomura Holdings Inc. Policy makers in Thailand have also passed this level with the baht, said Bank of Tokyo-Mitsubishi UFJ Ltd.
Should the two countries’ central banks seek to assuage US concerns -- and avoid a range of possible penalties -- it would likely lead to gains for their currencies, potentially reducing their export competitiveness.
For all the efforts of policy makers last year, the baht appreciated almost 10% against the dollar, while the rupee climbed 6.4%.
The two nations posted the biggest percentage gains among Asian emerging markets in their foreign-exchange reserves last year, more evidence their central banks are buying dollars to curb currency gains. China, South Korea and Taiwan -- which have been previously called out by the United States -- recorded some of the smallest increases.
The threat of US complaints will support more appreciation in Asian currencies in general this year, said Rajeev De Mello, head of Asian fixed income at Schroder Investment Management Ltd in Singapore. There has been a notable reduction in intervention from the three North Asian central banks, according to Schroder Investment and Australia & New Zealand Banking Group Ltd.
“Thailand and India have been two exceptions, which have been actively accumulating reserves to stem appreciation pressure on their currencies,” said Khoon Goh, head of research at ANZ in Singapore. Thailand isn’t one of the top 12 trade partners that the US normally focuses on but could find itself under scrutiny if the net is cast wider, Goh said.
The rupee and baht have made strong starts to the year, gaining 0.5% and 0.6% against the US dollar, respectively, so far in 2018.
While the US has not branded any country a manipulator since 1994, meeting two of the following three criteria will get you on the monitoring list:
A trade surplus with the US of $20 billion or more
A current-account excess of at least 3% of gross domestic product
Net buying of foreign currencies amounting to at least 2% of GDP over a 12-month period
China and South Korea were the only two emerging markets on the list at the last semi-annual report in October, while Taiwan was removed.
Thailand’s trade surplus with the US was at $16.7 billion at the end of October, according to the census bureau data, and its current-account excess has been more than 10% of GDP for the six quarters through September. The nation has passed the 2% intervention threshold and is one of 16 countries cited by the US as running high trade surpluses with it, Bank of Tokyo-Mitsubishi said in a Dec 26 note.
Thailand is more of a contender than India to be added to the monitoring list, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd in Singapore. “It’s got a very strong current-account surplus this year, but that trend is going to be watched a little longer.”
The Bank of Thailand’s foreign-exchange market operations are aimed at ensuring sharp currency movements don’t disrupt Thailand’s nascent economic recovery and aren’t intended to create an unfair export advantage, said BoT spokeswoman Chantavarn Sucharitakul. If monetary policy normalisation in the advanced economies spurs abrupt outflows in 2018, central banks of small open economies like Thailand may need to step in to manage the volatility, she said.
Nomura said in a Dec 11 note that the RBI had already passed the 2% of GDP annual intervention threshold. The US’s trade deficit with India was $19.7 billion at the end of October, according to data compiled by the US Census Bureau. A persistent current-account deficit -- 1.4% of GDP in the third quarter -- would appear to be India’s saving grace.
An RBI spokesman did not respond to questions on its intervention policy. The monetary authority has consistently said in the past that it intervenes to curb undue volatility.
The Treasury noted India’s net foreign-exchange purchases in its October report and said it would be closely monitoring the nation’s currency and macroeconomic policies. “Overall, we expect RBI intervention to be constrained by the US Treasury’s focus,” Craig Chan, the global head of emerging-market FX strategy at Nomura in Singapore, said in the note.
“The Trump administration will likely continue to try and name and shame countries that run large current-account surpluses and accuse them of currency manipulation,” said Guillermo Felices, London-based portfolio manager at BNP Paribas Asset Management. But it is unlikely to lead to protectionist measures unless there is a dramatic rise in the dollar or Trump decides to for domestic political reasons, he said.
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Thailand, India Risk Being Added To Us Currency Watchlist
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