Thai Baht currency NEWS

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Baht expected to move on US Fed rise 
: 20 Feb 2010
Baht expected to slightly move

BANGKOK, 20 February 2010 (NNT) - The onshore baht currency value was volatile and moved in a narrow range last week, according to the Kasikorn Research Center. Factors to be monitored include the domestic political situation and the GDP growth of last year’s fourth quarter.

The Thai baht has appreciated towards mid-week in line with the direction of other regional currencies and stocks supported by investors’ decisions to take risks and the appreciation of the euro. The baht has depreciated to 33.20 THB against the US dollar in the morning before appreciating to close at 33.16 THB against the dollar.

Meanwhile, the dollar has appreciated due to the US Federal Reserve’s increase of the discount rate to 0.75%. The dollar values are expected to be influenced by Greece’s financial crunch and the US’s important economic data such as February’s consumer confidence index as well as new and used house sales.

Next week, the baht is expected to move within the 33-33.40 THB range against the dollar. Other factors to be watched are the Bank of Thailand’s measures to stabilize the currency, directions of regional currencies and stocks, as well as the US dollar valuation.

http://thainews.prd.go.th/en/news.php?id=255302200016
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BoT: Thailand may raise interest before FED

BANGKOK (NNT) – The Thai interest policy is likely to be adjusted up before the US’s, says the Bank of Thailand (BoT).

Speaking of the recent increase of the US’s discount rate, BoT Governor Tarisa Watanagase, stated that it had no impact on Thailand’s policy interest rate because the economic structures of both countries were different, and they were different type of interest.

The governor admitted however that Thailand’s interest rate hike before the US was possible since Thailand and other Asian countries recovered faster than the US and Europe. Low-interest policy was no longer needed but the recuperation was still to be monitored, she said.

Ms Tarisa added that if Thailand’s interest rate was increased ahead of the US, an influx of foreign capital inflows was expected similar to other Asian countries. Thailand must therefore take a precaution against inflows for speculation to prevent an economic bubble.

The US Federal Reserve (FED) has recently increased the discount rate from 0.25% to 0.75%.

http://thainews.prd.go.th/en/news.php?id=255302190046

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Thai Baht weekly currency outlook 
: 1 Mar 2010
Baht likely stand around 32.9-33.3 THB/USD

BANGKOK, 1 March 2010 (NNT) – The Thai Baht currency is expected to move in the range of 32.9-33.3 THB to the US dollar in this week, according to the Kasikorn Research Center (KResearch).

Based on the estimation, liquidity in the financial system would improve after the end of February. Short-term inflation rate is likely to be stable around 1.25% as liquidity in the money market may not change much.

KResearch added that concens over domestic political uncertainty persisted. Measures of the Bank of Thailand to stabilize the currency as well as the directions of regional currencies and stocks should also be monitored.

Regarding the US dollar, the currency may be influenced by the financial crisis in Greece and its own economic data.

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Baht resumes gains on foreign buys 
Bangkok Post: 11 Mar 2010
Baht resumes gains on foreign share buys

The baht strengthened yesterday, snapping a two-day decline, as foreign investors added to their holdings of local assets on optimism that economic growth will pick up this year.

Overseas funds bought more Thai shares than they sold for an 12th day on yesterday, the longest stretch of net purchases since September, ahead of anti-government protests this weekend.

"The baht will be trading in a tight range," said Chutima Nuphan, a foreign-exchange trader at TMB Bank. "We saw net buying in stocks. But we have to wait and see what the situation will be during the protests."

The baht rose to 32.65/70 per dollar in Bangkok, against 32.69/74 on Tuesday.

http://www.bangkokpost.com/business/economics/34243/baht-resumes-gains-on-foreign-share-buys
 

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Thai baht, bourse, both gain further 
The Nation: 17 Mar 2010
Bourse and baht gain further despite protests
By SIRIborn CHANJINDAMANEE
THE NATION
Published on March 17, 2010

Both the stock market and the baht yesterday rose to their highest levels since mid-2008 on foreign investors' confidence the red-shirt protests would not escalate into violence.

The Stock Exchange of Thailand (SET) Index yesterday increased for a fifth day, climbing 17.37 points, or 2.4 per cent, to close at 752.2, its highest level since July 2, 2008. The volume of trading was high at Bt27.39 billion.

Foreign investors were net buyers of Bt21.23 billion worth of Thai shares between March 2 and this past Monday.

FOREIGN INVESTORS 'CONFIDENT'

"Foreign investors remain confident in Thailand, because they believe the protests will not turn violent," said Bank of Thailand Governor Tarisa Watanagase.

SET president Patareeya Benjapholchai said foreign investors were buying Thai equities because of the strength of the nation's economic recovery and corporate-earnings growth.

"Concerns about the present street protests have eased, because they've been peaceful these past few days," she said. "Thai stocks are attractive, because the country's economy and company earnings were stronger than expected in the fourth quarter."

US brokerage Morgan Stanley has increased its weightings for emerging markets, including Thailand, Turkey and the Czech Republic.

The baht also strengthened to a 21-month high after foreign investors added their holdings to baht assets, particularly |Thai stocks, as clear evidence of an economic recovery.

The baht rose 0.3 per cent to 32.45 against the US dollar late yesterday afternoon in Bangkok after reaching 32.41 during the day, its strongest since June 2008.

Some 100,000 red-shirt demonstrators began entering Bangkok last Friday to pressure Prime Minister Abhisit Vejjajiva into dissolving Parliament and calling a fresh general election. They are supporters of ousted premier Thaksin Shinawatra.

However, the red shirts yesterday appeared to have lost their momentum after five days of political rallies out in the scorching heat, and many have decided to return home.

The protesters yesterday donated blood to pour at Government House as a curse.

"Investors are confident the government can keep the situation under control, because the demonstration will not likely bring about any political change," said one local broker.

TOURISM MAY BE AFFECTED

Tarisa said the anti-government protests might affect tourism and consumption.

"Still, the severity of the impact will depend on the length of the protest and level of any violence," she said. "If the situation ends soon without any violence, we expect the effects to be limited and recovery quick."

Thailand Trade Representative Office president Kiat Sittheeamorn yesterday estimated the tourism industry had lost Bt1 billion a day from the rallies.

Finance Minister Korn Chatikavanij reiterated |economic growth in the first quarter would be "more than 5 per cent", against 5.8 |per cent in last year's |fourth quarter.

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BOT to intervene if Thai baht fluctuates 
Bangkok Post: 23 Mar 2010
BOT to intervene if baht fluctuates

The Bank of Thailand (BOT) will intervene if the Thai baht fluctuates erratically, BOT assistant governor Paiboon Kittisrikangwan said on Monday.

Mr Paiboon said the central bank will have to make sure that the baht's value would not hurt the private sector.

"BOT governor Tarisa Watanagase always said the central bank will have to prevent the baht from fluctuating too much as that may create difficulties to exporters," he said.

He said the central bank had no policy to maintain the baht's value.

"The appreciation of the Thai currency against the US dollar has not affected the export sector yet, as can be seen from the rising export value," he said.

http://www.bangkokpost.com/breakingnews/172384/bot-to-intervene-if-baht-fluctuates

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Thai Baht nears 22-month high 
The Nation: 30 Mar 2010
Baht approaches 22-month high

The baht was almost at its 22-month high Tuesday on positive Thai economic outlook which attracted overseas demand for local assets.

The government on Monday revised up its GDP 2010 growth estimate from 3.5 to 4.5 percent in view of the improving global economic environment.

The Baht strengthened by 0.1 percent to 32.33 per the U.S. dollar.

The baht has gained 3 percent in the first quarter of this year, should strenghten to Bt31.50 per U.S. dollar by year-end, currency traders said.

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Foreign inflows pump up Thai SET, Baht 
The Nation: 8 Apr 2010
Foreign inflows pump up Thai bourse
By The Nation, Bloomberg
Published on April 8, 2010

The Thai stock exchange yesterday continued its upward movement despite the aggravating political crisis, driven mainly by foreign capital inflows that boosted the turnover to Bt36.9 billion.
Nation

The inflows, which further boosted the baht against the US dollar, are expected to counterbalance negative factors induced by the political unrest throughout this month, said several brokerage houses.

The baht traded at 32.34 to the dollar as of 4.22pm in Bangkok, from 32.38 on April 5. It touched 32.25 on March 19, the strongest level since May 2008.

"You still see funds flowing into Thailand, which support the baht, and on the other hand, you have a growing political concern," said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp. "These factors make it hard to put one way pressure on the baht."

SCB Securities remained positive on the market outlook for this month. Though sug gesting to investors not to buy more shares ahead of the Songkran holidays, it advised them to maintain their stocks in the belief that continued capital inflows would offset any negative news caused by the political conflict.

Inflows are estimated at Bt1 billion to Bt1.5 billion per day, below the Bt2billion daily average last month.

According to DBS Vickers Securities (Thailand), the average daily trading value jumped to Bt25.9 billion in March from Bt14.1 billion in February, due to heavy foreign buying.

Foreign investors have been net buyers in the market for two consecutive months. As a result, in March, the Thai market outperformed regional peers, rising 9.2 per cent against regional peers' 7.6percent gain.

"The Thai market remains one of the cheapest in terms of valuation in the region. But there is lingering political risk, which is a key factor to watch. We remain overweight in banking, energy, and food, which should see higher earnings growth this year," the house said.

As Asean finance ministers gather in Nha Trang, Vietnam, a statement is expected today, suggesting that Southeast Asian economies may need currency flexibility to minimise the risk of capital inflows that have supported the region's rebound.

The global economy remains "fragile" and Southeast Asian governments will continue to pursue expansionary policies until the recovery is "secured", according to the draft of the statement obtained by Bloomberg News.

"We are encouraged by the return of capital to the region, which has supported our improved economic and financial conditions, the ministers said in the draft. "But we are also cognisant of the risks involved and the need to manage capital inflows through exchange rate flexibility and prudential measures."

Asian governments pumped more than $950 billion into their economies through increased investment, tax cuts and cash handouts to boost growth. Rebounding economic activities encourage the capital inflows to the region, the ministers said in the draft.

The Asean economy may expand between 5 per cent and 5.5 per cent this year, after 1.5 per cent in 2009. According to the World Bank, the Thai economy may expand as high as 6.2 per cent this year, from a 2.3percent contraction in 2009.

Malaysia, India and Vietnam are among Asian nations that have raised interest rates to avert asset bubbles and fight inflation. China has asked banks to set aside more money as reserves to reduce liquidity in the financial system.

HSBC in Thailand believes that at the June meeting, the Monetary Policy Committee will raise the policy rate by 25 basis points. This is not primarily to tackle core inflation, but a signal that the economy is recovering strongly and warranting less support with time.

The Asean statement also highlighted the countries' policy to pursue expansionary policies until recovery is secured but at the same time, "we will stand ready to withdraw our fiscal, monetary and financial sector support once private demand has become self sustained," the statement said.

"Our exit strategies will be guided by our respective economic fundamentals, consistent with the goals of medium term fiscal sustainability, price stability and financial stability," the statement added.

The Asean ministers said they will continue to find ways to reduce their nations' dependence on export led growth and boost domestic demand to spur their economies. This requires rebalancing towards domestic demand and services, boosting productivity and enhancing integration of our markets.

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Thai Baht steady but tourism suffers 
Bangkok Post: 27 Apr 2010
Baht's ok but tourism suffers

*Published: 27/04/2010 at 05:06 PM


The escalating political crisis has not affected the value of the Thai currency, Bank of Thailand (BOT) deputy governor Bandit Nijthaworn said on Tuesday.

"The baht's value has not been hit by the political turmoil as there are no capital outflows at this time.

"In contrast, the Thai currency has appreciated as a result of continuous capital inflows to the Thai stock and bond markets," Mr Bandit said.

Thailand's credit rating had been recently downgraded but it should not affect the interest rates of foreign loans to the country, he said.

"But the interest rates could rise if the country's credit rating continues dropping because of higher risk," he said.

The central bank will evaluate the overall economy along with the effects on this year's economic growth and will announce its economic projection on Friday.

"I believe the Thai economy can still move forward due to the global economic expansion together with the relaxed monetary policy and interest rates. The financial policy can still help stimulate the economy," the deputy governor said.

Tourism and Sports Minister Chumpol Silpa-archa said the number of foreign tourists arriving at Suvarnabhumi airport has dropped from an average 30,000 a day to 21,000 because of the prolonged and escalating anti-government rally.

"The number of tourists arriving at Suvarnabhumi has notably dropped by about 10,000 a day," Mr Chumpol said.

Mr Chumpol said the Tourism Authority of Thailand (TAT) had proposed a tourism crisis recovery plan to the government.

The plan is in three parts - a public relations campaign, more cooperation with airlines and major foreign travel agencies, and marketing. About 600 million baht will be allocated for a domestic marketing campaign and another 1.45 billion baht for overseas.

"The plan will be executed after the political situation returns to normal," the minister said.

He said other tourism promotion measures, such as the free visa scheme to begin on Wednesday, were expected to boost tourist arrivals.

About 5,800 tourists from China were due to visit Thailand from May 6 to 8, but if the political unrest continues many could well change their plans.

Economic figures should be out after the political rally ends, and the government would then be able help affected businesses, he said.

The red-shirt United Front for Democracy against Dictatorship (UDD) has rallied at Bangkok's Ratchaprasong commercial district since April 3, demanding Prime Minister Abhisit Vejjajiva to dissolve the House of Representatives and call a general election.

http://www.bangkokpost.com/news/local/176019/baht-ok-but-tourism-suffers

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Thailand urged to resume currency peg 
The Nation: 4 May 2010
Thailand urged to resume pegged currency

By ACHARA DEBOONME
THE NATION
Published on May 4, 2010

Thailand and other Southeast Asian nations are being strongly urged to change their foreign-exchange policy, given that major Western currencies could further lose their shine, due to massive public debt.

Independent consultant John Sheehan yesterday advised Thai authorities to consider resuming the currency peg.

"If the baht moves freely, it could further appreciate to 25 to the US dollar. That would destroy exports and tourism," he said.

His argument lies heavily on the massive amount of public debt. Leading the charge is Japan, where public debt now exceeds 200 per cent of gross domestic product (GDP), with Europe and the US hot on their heels. They all need to cut back on spending, but this will result in lower tax receipts and an even bigger deficit. The options are to default on the debts or print more money, which would only lead to hyperinflation.

US public debt rose to US$11 trillion (Bt356 trillion) last year, or nearly the size of that country's economy, against $5 trillion in 2000. Sheehan expects the US to seek partial debt default sometime between 2012 and 2014.

He said the default outlook was imminent, given that inclusive of contingency liabilities, that country's public debt was now 160 per cent of GDP. Western countries are also shouldering a huge burden from unfunded welfare benefits.

The general belief is that a public-debt level of 60 per cent of GDP slows down economic growth. At 90 per cent, it could stop growth.

"If this hits 200 per cent, there are two options: hyperdeflation or default," Sheehan said.

Thus, Southeast Asian economies are urged to change their approach to foreign-exchange risk, because Western currencies are at the beginning of a long-term slide, and for smaller, export-based economies to continue flowing previous foreign-exchange approaches is illogical and will become increasingly risky. This is aside from major investment in new technologies and products and aggressive and active development of new export markets.

Southeast Asian currencies are now strengthening artificially, not in response to domestic growth, but rather to Western weakness. Sheehan said if this intensified, the baht could rise above 30 to the dollar, reaching even 25 - when it was last pegged to the US.

He said the simplest and most logical way of counteracting this was implementation of a managed peg similar to the Chinese model. This would stimulate growth immediately by increasing GDP and automatically build up reserves. The downside is inflation risk, but this is the lesser of two evils, particularly in a global recession.

In this way, Sheehan sees the advantage of the political crisis, which has weakened the baht, and he suggests authorities peg it once it hits bottom.

Last Friday, the baht fell to about 32 to the dollar, making it one of the region's weaker currencies. It is expected to trade at 32-32.40 this month on the uncertainty surrounding the ongoing political turmoil.

Sheehan sees less need for building up foreign reserves to defend the currency, because reserves are needed only to defend an overvalued currency. Given the perilous state of Western markets, the baht is now effectively undervalued. Hot-money flows have also been flagged, but given the likelihood of Western deflation, such flows into Thailand would be an issue regardless of whether the currency was pegged.

The baht can be fixed against a basket of currencies related to, say, export-destination markets, foreign direct investment or even commodity and energy prices, given that Thailand is reliant on exports and energy.

Sheehan ended by saying the sooner a peg was placed, the sooner the benefits would flow. This would also mitigate rebound volatility when the major Western currencies reverse their present long-term decline.
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Background:

The news report unfortunately failed to preface Mr Sheehan's background. To that end, the following is quoted from the AMCHAM website:

John Sheehan

John Sheehan was an Executive Director at Lehman Brothers for ten years until 2008, both here in Bangkok and afterwards in London, where he specialised in real estate investment, structured finance, corporate restructuring and distressed debt, participating in both Thailand's first ever RMBS (residential mortgage backed securities) transaction and also Thailand's first ever rated RMBS transaction. Anticipating the global problems unfolding, John retired from Lehman Brothers in August 2008, a month before the bank failed.

Since then John has been in great demand in a new career, lecturing on the global financial crisis and its effect on local, regional and global markets and supported by and working closely with Bangkok-based wealth manager, MBMG International, has established his own specialist research consultancy, Global Markets Asia (GMA) to give an impartial, informed view of the present and future financial situation. In addition to this John continues to give consultancy & advisory services to corporations, financial institutions and governments regarding debt, non-performing loans and assets, and loan restructuring. The research produced by GMA assist MBMG to advise on over AUD 200 Million of assets under advice in a range of currencies including AUD, US$, Baht and SGD.
 

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Baht drops to two month low vs USD 
Bangkok Post: 18 May 2010
BANGKOK RIOTS
Political chaos sees baht stumble to a two-month low

The baht yesterday dropped to its lowest level against the greenback in nearly two months due to market worries about political violence in Bangkok.

The baht was quoted yesterday at 32.42/48 to the US dollar, compared with 32.32/4 on Friday.

Against the yen, 100 baht traded at 34.83/35.538 yen compared with 34.57/35.18 on Friday.

Thiti Tantikulanan, head of capital markets for Kasikornbank, said market reaction to the violence over the weekend was relatively mild.

"There wasn't really much actually," he said.

"We saw the baht weaken by around seven satang, even as other regional currencies gained ground."

Regional currencies are expected to continue to their rise as a result of fresh market worries about global economic growth and the stability of the euro.

Mr Thiti said investors were moving away from the dollar to Asian currencies, a trend that has been ongoing for the past several months due to expectations that the region will outperform others in terms of economic growth and stability.

"Assuming that the [local political] situation doesn't significantly deteriorate further, we should see the baht trade between 32.35 to 32.55 to the dollar," said Mr Thiti.

In the bond markets meanwhile, trading was relatively thin, with under 20 billion baht in volume in yesterday's morning session, less than half that of normal trade. Government bond yields continued to decline as investors looked to cut risk holdings in favour of "safe haven" bonds.

Ariya Tiranaprakij, an executive vice-president of the Thai Bond Market Association, said bond yields have fallen 20 to 30 basis points (hundredths of a percentage point) since last month as a result of investor concerns about the political situation.

"We expect that yields will continue to decline over the next several days," she said. "If the political situation remains as it is, the bond market will continue to be favoured as a place to park funds."

Ms Ariya said, however, that there was little sign of a mass exodus of funds from the market, despite the political troubles.

"[Outflows] will not come I think unless foreign investors dramatically change their view on the country," said Ms Ariya.

"A credit downgrade for instance, may be a trigger."

Five-year government bonds were quoted yesterday at 3.09558%, down 3.64 basis points, while the 10-year bond fell 1.52 points to 3.69506%.

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Baht biggest monthly decline in 15 months 
: 31 May 2010
Baht Has Biggest Monthly Decline in 15 Months on Fund Outflows
(Bloomberg):

Thailand’s baht completed its biggest monthly slide since February 2009 as overseas funds offloaded stocks on concern political violence in the nation’s capital and Europe’s debt crisis will slow economic growth.

“The European crisis may slow exports at a time when domestic demand is already hurt by the political turmoil,” said Tohru Nishihama, economist at Dai-ichi Life Research Institute Inc. in Tokyo. “The central bank will probably have to delay the timing of any rate hike, making it better to buy bonds. The baht may stay under depreciation pressure.”

The baht dropped 0.5 percent in May to 32.51 per dollar as of 3:32 p.m. in Bangkok, according to data compiled by Bloomberg. It climbed 0.1 percent today. The currency may fall to around 32.80 in June, Nishihama said.

Losses from tourism revenue and investments because of the rallies may shave about two percentage points from economic growth this year, Finance Minister Korn Chatikavanij said May 24. The finance ministry, which estimates the economy may grow 4.5 percent this year, will revise the forecast on June 29, Satit Rungkasiri, head of the fiscal policy office, said May 26.

The baht gained today on speculation exporters bought the currency, according to Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl, the nation’s biggest lender.

“The current level of the baht may be a good level for exporters to sell the dollar,” Disawat said.

Bonds and Swaps

The yield on the 3.875 percent bond maturing in June 2019 dropped 24 basis points, or 0.24 percentage points, to 3.26 percent from the end of April, according to intraday prices from the Thai Bond Market Association. The price gained 1.88, or 18.8 baht per 1,000 face amount, to 104.7818. Domestic financial markets were closed on May 28 for a holiday.

The one-year onshore interest-rate swap, the fixed cost needed to receive a floating payment, dropped to 1.27 percent from 1.315 percent on May 27 and 1.56 percent on March 12 when the anti-government rally began. The drop signals investors pared bets as to when the central bank will increase borrowing costs.

The Bank of Thailand, which next meets to review monetary policy on June 2, has kept its benchmark interest rate at 1.25 percent since April last year, the lowest level since July 2004.

“The central bank cannot raise rates anytime soon,” Dai- ichi Life Research’s Nishihama said. “They probably need to see impact from the political turmoil on tourism, consumption and investment. So, swap rates may stay under pressure to fall.”

http://www.businessweek.com/news/2010-05-31/baht-has-biggest-monthly-decline-in-15-months-on-fund-outflows.html

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Thai Baht stable: BoT 
: 5 Jun 2010
Baht stable despite impact of European public debt crisis: BoT
วันเสาร์ ที่ 05 มิ.ย. 2553

BANGKOK, June 5 (TNA) – Asian currencies including the Thai baht are holding their stability at present despite the heavy volatility of the Euro, fuelled by the public debt crisis in some European countries, according to the Bank of Thailand (BoT).

BoT Assistant Governor Suchada Kirakul said the regional currencies had not been adversely affected by the debt problems in Europe because the economic fundamentals of the Asian countries are rather strong as could be witnessed by the impressive economic growth of many countries in the first quarter of this year. She indicated Singapore as an example, which enjoyed a 15 per cent growth, and Thailand 12 per cent expansion.

“The regional currencies including the baht are seen weakening slightly on a daily basis, but they have nonetheless strengthened since early this year. For
instance, the baht has risen 2.4 per cent, the Indonesian rupiah by 2.6 per cent and the Malaysian ringgit by 4.8 per cent,” she said.

The baht had moved rather steadily partly because the currency had already weakened to a certain extent due to tensions in the Korean peninsula and Thailand's domestic political disorder.

Capital movements have been rather balanced for the moment although foreign capital have been flowing out from the stock market in some amount.

She said that some foreign funds had still flowed into the bond market and foreign investment funds (FIF) remitted investment returns.

Simultaneously, the trading of exporters and importers had been rather in equilibrium, resulting in the baht becoming stable, she said. (TNA)

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Baht opens lower in line with region 
: 7 Jun 2010
THB opened at 32.62-32.64 THB/USD, speculated to weaken

BANGKOK, 7 June 2010 (NNT) — The Thai currency opened at 32.62-32.64 THB/USD today and is speculated to weaken from the Euro zone debt crisis.

According to financial experts from the Bank of Ayudhya, the Thai baht has weaken compared to its closing value of 32.60 THB/USD on Friday evening. At 08.45 hrs this morning, the value of the Thai baht reached a high of 32.67 THB/USD.

The depreciation of the Thai currency follows other regional currencies as the US dollar has appreciated, experts said.

Meanwhile, investors are still uncertain about the Euro zone crisis, which lead to the weakening of the Euro currency. According to financial experts, the political and domestic factors play less role in the movement of the Thai currency as the situation is gradually returning to normal.

The THB is speculated to move in a narrow frame of 32.60-32.75 THB/USD.

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Yuan hits highest level in five years 
Bangkok Post: 21 Jun 2010
Yuan hits highest level in five years
AFP

China's yuan exchange rate hit its highest level against the dollar in five years Monday, after policymakers pledged at the weekend to make the currency more flexible, Dow Jones Newswires reported.

The yuan surged to 6.8089 to the dollar on the nation's main foreign exchange trading market, its highest since July 2005.

The People's Bank of China set the central parity rate -- the centre point of the currency's allowed trading band -- at 6.8275 to the dollar, unchanged from Friday, according to a statement on its website.

The dollar had closed Friday at a higher rate of 6.8262 yuan.

"At the beginning the market was trying out around the level of Friday's close, but it has since turned to focus on the prospect of yuan appreciation in the near term," a Shanghai-based trader at a foreign bank told Dow Jones.

"Everyone is selling dollars now."

China's central bank said Saturday it would "strengthen the flexibility" of the yuan exchange rate, which some analysts saw as a sign Beijing was ready to adjust the dollar peg in place for two years and allow the currency to rise.

However, the bank moved Sunday to douse expectations, saying there would be no "large swings" in the currency and no one-off adjustment.

China has effectively pegged the yuan at about 6.8 to the dollar since mid-2008 to prop up exporters during the world financial crisis.

But it has come under mounting pressure ahead of next weekend's Group of 20 summit in Toronto to allow the currency to strengthen.

The issue has been a constant irritant in US-China ties, with American lawmakers charging Beijing deliberately undervalues the yuan, unfairly boosting Chinese manufacturers and costing US jobs.

The currency has been allowed to move within a 0.5-percent range on either side of the peg, and the central bank said Saturday it would maintain the existing trading band.

Analysts expect the currency to appreciate, albeit by a very small amount, this week in the belief that Beijing wants to head off an ugly spat with Washington at the June 26-27 meeting in Canada.

"I would expect some appreciation ahead of the G20 as a token of goodwill," said Ben Simpfendorfer, an economist at Royal Bank of Scotland in Hong Kong.

However, the central bank's decision to leave the central parity rate unchanged Monday showed "gradualism will remain the guiding rule", he added.

Simpfendorfer expects a three percent yuan appreciation over the next 12 months, a pace that could invite renewed US impatience and pressure on China.

The central bank stressed it would maintain control over "exchange rate fluctuations" and ensure the "basic stability" of the currency -- official speak for keeping a tight grip on the yuan.

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RELATED ARTICLE:

KBank predicts Baht to be stronger in next 3 months

BANGKOK, 21 June 2010 (NNT) –Kasikorn Thai bank foresees Thai baht to be stronger in the next three months with the rate probably at 32.20 THB/ USD.
Kasikorn Thai Executive Vice President Songpol Chevapanyaroj stated that the baht currency would move in the rage of 32.20-32.30 THB/USD within the next three months, due to the increase of investors’ confidence from the expansion of export sector and the internal political improvement.

In the case of Chinese government’s measure to release Yuan from pegging the currency to US dollar, resulting in the strengthening of the Yuan and other currencies in the region, Mr Songpol viewed that the Bank of Thailand (BoT) would play a role in controlling the baht from volatility.

He added that the strength of Yuan would benefit Thai export in price competition particularly among the exports of agricultural, food and textile.

http://www.bangkokpost.com/news/asia/182030/yuan-hits-highest-level-in-five-years

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Bank of Thailand checks baht rise 
The Nation: 24 Jun 2010
BOT steps in to check baht rise
By The Nation, Agencies
Published on June 24, 2010

The Bank of Thailand early this week intervened in the foreign exchange market, following irregular movement in the US$/baht exchange rate, BOT Assistant Governor Suchada Kirakul said yesterday.
The baht's appreciation against the greenback was faster than the $/yuan rate, she said.

Yesterday's weakening of the baht was not because of the intervention but due to the market mechanism, she said.

The baht slid 0.1 per cent to 32.37 per dollar as of 3.32pm in Bangkok, according to data compiled by Bloomberg. On Tuesday, it touched 32.23, the strongest level since May 10.

BOT Deputy governor Bandid Nijathaworn admitted that the yuan's strengthening would pull up other Asian currencies, which is supporting longterm economic stability. He is also confident that Asia will be the major growth driver of the world.

"Asia is resilient to the European debt crisis. The middleclass population is also increasing and boosting consumption. This attracts foreign investment," he said.

Still, he expressed concern that Thailand's economic acceleration in the second half may pressure inflation and it could drive the central bank to take action soon. He also noted that inflation next year might exceed this year's target of 0.53 per cent, on economic acceleration.

Credit Suisse Group said China's policymakers would likely let the yuan rise as much as 5 per cent over the next 12 months, more than forward contracts suggest.

The yuan is about 50 per cent "undervalued", the Swiss lender estimated in a June 21 research note, citing factors, including trade.

Morgan Stanley said in a report that the yuan will strengthen about 10 per cent by the end of next year.

"We would not be surprised to see a 5 percent appreciation," wrote Andrew Garthwaite, global equity strategist in London at Credit Suisse. "Clearly, every commentator including us believes the move will be gradual."

The yuan was 0.05 per cent stronger at 6.8099 per dollar as of 2.35pm in Shanghai, extending this week's advance to 0.24 per cent, according to the China Foreign Exchange Trade System.

Non deliverable forwards show investors are betting on a 2.2percent appreciation over the next 12 months.

Economists at Citigroup expect the yuan will strengthen 2 per cent against the US dollar through the end of this year and nearly 3 per cent within a year, compared with a 19percent appreciation between 2005 and 2008.

Citigroup expects the end of yuan's peg will boost Asian currencies and benefit the region's natural resource producers, tourism companies and property developers.

"China's renminbi policy shift could spark a rally in Asian currencies and markets as investors positioned in anticipation of currency gains," Chua Hak Bin, head of research at Citigroup in Singapore, wrote in the report released this week.

Increasing overseas investment by China should raise the bankloan demand in affected regions, benefiting banks, including PT Bank Mandiri and Bangkok Bank, according to the report.

Natural resource producers, including Banpu's Indo Tambangraya Megah, Kuala Lumpur Kepong and Golden AgriResources, should benefit from stronger commodity demand.

With a stronger yuan and increasing wealth, Chinese tourists will likely increase and that should contribute to profits of carriers and other tourism related companies.