The Bank of Thailand is set to tighten foreign exchange monitoring to prevent short-term baht speculation after the local currency surged to its highest level in more than six years on Thursday.
The central bank will take a stricter approach in tracking transactions suspected of parking short-term money in the country for speculative purposes, said Vachira Arromdee, assistant governor overseeing financial markets operations.
Speculating in the baht for short-term gain is undesirable behaviour, Ms Vachira said.
The baht on Thursday rallied past the 31-mark to its strongest level against the US dollar in more than six years. Thailand's currency unit traded at 30.95, up from the previous day's 31.19.
The baht has emerged as the best-performing currency in Asia, gaining 4.8% year-to-date against the dollar. The Japanese yen is second with a 1.8% rise.
If the baht continues to gain at a higher and faster pace than currencies of trade competitors, the trend does not seem to be in line with Thailand's economic fundamentals and this would deal a blow to the real sector and operators' adaptability, Ms Vachira said.
The private sector is advised to regularly hedge against foreign exchange fluctuation, she said, and it's a good time for borrowers to pay debts denominated in foreign currencies.
Krungthai Bank chief markets strategist Jitipol Puksamatanan said the Fed's signal adds optimism for investors and prompts more offshore capital to move into Thai equities and bonds.
Bullish sentiment for the baht is expected to continue until the G20 summit ends, as investors are betting that the US-China talks will help ease the trade spat, Mr Jitipol said.
"The baht's strength is, however, too fast and the trend is likely to reverse in the future," he said.
Investors will also focus on the Bank of Thailand's rate-setting panel meeting set for next Wednesday to take cues as to whether the central bank will join the global easing trend, he said.
EXTENDED BULL RUN
The Stock Exchange of Thailand (SET) index extended its gains amid baht appreciation, with inflows seen moving into other asset classes like domestic bonds and bullion.
The Fed's hints of a possible rate cut prompted offshore funds to continue shifting towards emerging markets for better yields.
Thailand's benchmark index closed on Thursday at 1,717.82 points, up 11.84 points or 0.7%, in turnover worth 75.5 billion baht. Foreign investors were net buyers of shares worth 4.5 billion baht.
Foreign investors were also identified as net buyers of local shares worth 27.2 billion baht on a month-to-date basis and 21.2 billion baht in the year to date.
The SET rally was in line with that of regional indices, with China's Shanghai Composite gaining 2.4% and Hong Kong's Hang Seng edging up 1.24%.
"If the US-China trade talks turn out successful, we expect both countries to reach an agreement and agree to another round of ceasefire [on imposing punitive tariffs]," said Poranee Thongyen, senior executive vice-president of Asia Plus Securities. "Otherwise, failure means they would still be proceeding with the trade war, which would depress global stock markets further."