BLBG:Thailand Talks Baht Lower as Russia Warns of ‘Currency War’
Thailand joined a growing chorus of developing nations expressing alarm at the rapid appreciation of their currencies as increased monetary easing in the U.S. and Japan spurs demand for higher-yielding assets.
The baht climbed to a 17-month high today, before retreating after Finance Minister Kittiratt Na-Ranong said the exchange rate is “not at a good level” and exporters will face difficulties should it strengthen further. The Bloomberg- JPMorgan Asia Dollar Index is headed for a record eighth monthly gain and currencies in Colombia, Poland and Romania reached their strongest levels this month since at least February 2012.
The Federal Reserve expanded its monthly asset purchases from Jan. 1, boosting the supply of U.S. currency, and Japanese Prime Minister Shinzo Abe is seeking “bold” monetary easing to end deflation. Russia’s central bank warned yesterday the world is on the brink of a fresh “currency war,” while policy makers in South Korea and the Philippines said this week they may restrict capital inflows. Colombia’s finance chief called on his central bank to step up dollar purchases and the Czech Republic threatened intervention to weaken the koruna.
“With risk appetite among investors growing this year and plenty of liquidity supplied by developed nations, appreciation pressure on the emerging-market currencies is unavoidable,” said Koji Fukaya, a former chief foreign-exchange strategist at Credit Suisse Group AG in Tokyo who now runs his own consultancy, called Office Fukaya. “Monetary authorities are probably not trying to guide weaker currencies, but the problem for them is the pace of their appreciation.”
Romania, Russia
The Asia Dollar Index, which tracks Asia’s 10 most-used currencies excluding the yen, has risen 0.4 percent this year and the Bloomberg-JPMorgan Latin America Dollar Index is up 0.7 percent. Romania’s leu climbed 3.2 percent, Mexico’s peso 3.1 percent and the baht 2.5 percent, leading gains among 25 emerging-market currencies tracked by Bloomberg.
Romanian central bank Deputy Governor Cristian Popa said yesterday the currency is “not distant from fair value,” while Russia’s central bank has already intervened this year to stem gains in the ruble. Colombia’s peso strengthened 1.2 percent in the past month and Finance Minister Mauricio Cardenas said Jan. 15 he saw no reason for such gains and would like to see the central bank boost dollar purchases after it bought a record $4.8 billion in 2012.
The yen weakened 0.3 percent today as Japanese Economy Minister Akira Amari said the yen is still in the process of correcting from excessive gains. The currency touched 89.67 on Jan. 14, the weakest level since June 2010.
‘Closely Watching’
The baht was little changed from yesterday at 29.84 per dollar as of 2:47 p.m. in Bangkok, having risen as much as 0.4 percent before Kittiratt’s comments. Bank of Thailand Governor Prasarn Trairatvorakul said today that capital inflows into short-term securities were driving the currency higher, adding that the central bank is “closely watching” the situation and has measures to deal with the issue if needed.
Taiwan’s central bank has intervened to weaken its dollar on most days in the past nine months, according to traders who asked not to be identified.
“There is normally a degree of intervention in the case of Asian central banks,” said Sacha Tihanyi, senior currency strategist at Scotiabank in Hong Kong. “There is currently a desire to not interfere too much with fundamental forces, though speculative forces will be more of a concern.”
South Korea’s won and the Philippine peso led Asian gains in 2012, prompting policy makers in the two nations to clamp down on the use of currency forwards in the fourth quarter. The currencies advanced 8.3 percent and 6.8 percent, respectively, before appreciating further this month.
G-20 Meeting
South Korea’s Vice Finance Minister Shin Je Yoon said yesterday the nation is studying measures to reduce volatility in capital flows and called for next month’s meeting of finance ministers from the Group of 20 nations in Moscow to focus on the adverse effects of monetary easing in the U.S., Europe and Japan.
The Philippine peso has gained 0.9 percent this year and reached 40.55 per dollar on Jan. 14, its strongest level since March 2008. Central bank Governor Amando Tetangco said the following day that the monetary authority intervened to restrain the currency and is focused on limiting speculative inflows that could lead to asset-price bubbles.
The won is forecast to gain 3.3 percent this year versus the dollar and the peso 3.9 percent, based on the median estimates in Bloomberg surveys of analysts.
‘One-Way Bet’
“Korea and the Philippines are the Asian front of the coming currency war,” Tim Condon, Singapore-based head of Asian research at ING Groep NV, wrote in a report today. “It’s going to get bloody. We consider policy interest rates in both countries, 2.75 percent in Korea and 3.5 percent in the Philippines, too high given the consensus view that their currencies are a one-way bet.”
Those benchmark interest rates compare with a maximum 0.25 percent in the U.S., 0.1 percent in Japan and 0.75 percent in the euro area. South Korea’s two-year bond yield of 2.73 percent compares with 0.25 percent on Treasuries and 0.07 percent on Japanese notes. Similar-maturity debt yields 6.1 percent in Russia and 5.62 percent in Chile, according to data compiled by Bloomberg.
Chilean Finance Minister Felipe Larrain said on Jan. 8 the government shared exporters’ concern about the appreciation of the nation’s peso, which strengthened 8.7 percent versus the dollar in 2012 and has gained a further 0.9 percent this year.
To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net
