Is a Trend Reversal of the Exchange Rate Finally Happening?

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For the past several days the exchange rate has been moving steadily in favor of the US dollar and the predictions I have been reading suggest that the trend will continue. As stated in a thread below, only a few weeks ago the baht nearly got into the 32s. Now it is close to getting back into the 34s. That is still a miserable exchange rate, but it's a whole lot better than if it got into the 32's.

 

First, the latest exchange rates, followed by an article that explains what is going on.

 

Closing rates for August 7:

 

US Dollar: 33.73

 

Euro: 46.435

 

British Pound: 68.32

 

Australian Dollar: 28.775

 

Canadian Dollar: 31.8125

 

The following appears in THE NATION:

_____

 

Money From Sell-Off 'Still Here'

 

Fears of a Cash Exodus After Bourse Tumbles

 

Published on August 8, 2007

 

There are no signs of a capital outflow from Thailand, says a senior central-bank official. This is despite the current sell-off of Thai shares by foreign investors, which has reached a value of Bt18 billion.

 

Bank of Thailand Assistant Governor Nitaya Pibulratanagit rushed to soothe a jittery market yesterday by saying foreign money that had recently left the Thai stock market remained in Thailand. Rather than taking their money out of the country, foreign investors are exercising their choice to leave it in special non-resident accounts for stock trading.

 

Nitaya said there was no need to seek a clearer picture. Her comments came amid rising fears that foreign investors would shift their money to other countries after the sharp tumble in the Thai stock market.

 

Foreign investors who have so far this year snapped up Thai shares with a net position of Bt120 billion have turned to unload the stocks since late last month, sparked by growing anxiety over the impact of the US sub-prime home-loan crisis.

 

The Thai stock market has lost about 8 per cent.

 

The Stock Exchange of Thailand Index yesterday moved like a roller coaster. It started with a strong gain as investors tracked a sharp rise on Wall Street and in regional stock markets. However, the euphoria succumbed to profit-taking, with the local market closing 0.18 per cent lower at 814.4 points, off of an intra-day low of 805.9. Turnover was thin at Bt16.94 billion.

 

Although the percentage fall in Thai shares was lower yesterday, foreign investors continued to dump them heavily for a net value of Bt2.61 billion. This indicates that the selling spree will continue.

 

"If the US catches cold, so do we," said Finance Minister Chalongphob Sussangkarn. "However, the impact will be limited."

 

He said the US deputy treasury secretary, whom he met at the recent Asia-Pacific Economic Cooperation forum's Finance Ministers' Meeting in Australia, told him the impact would not be severe.

 

"Current measures to stem the baht's appreciation will be sufficient. The baht has started to weaken. Any new measures might create volatility for the baht," he said.

 

The baht weakened yesterday to end at 33.88/33.90 to the US dollar after opening at 33.85/33.87.

 

Wachovia Securities said in a note that fears of a credit crunch in the US were rising and credit spreads continuing to widen.

 

"Mortgage lenders are reporting funding difficulties, and some hedge funds are receiving calls resulting in forced-selling as leverage is reduced. All of this is beginning to create illiquid market conditions, potentially jeopardizing stock-market exuberance. Fundamentally, however, we still think a credit crunch will be avoided, because non-financial corporate balance sheets remain strong, lowering the risk of default, while the outlook for economic growth is healthy," the company said. "Valuations are also becoming more attractive, although they tend to overshoot in panic situations, just as they do during periods of exuberance."

 

However, Dow Jones Newswires reported that turmoil in the US home-mortgage market was starting to pinch even buyers of high-end homes with good credit records, in the latest sign of rising anxiety among lenders and investors.

 

A jump in jumbo-mortgage rates for prime borrowers is the latest gust in a sub-prime storm that has sunk two hedge funds run by Bear Stearns Companies, knocked American Home and dozens of other lenders out of business, battered an already-weak housing market and fueled weeks of stock-market turmoil.