Baht weakens further on drought, Fed rate-cut bet

Baht weakens further on drought, Fed rate-cut bet

The baht is poised to breaking the 35 level against the US dollar for the first time since 2009, after weakening by 2% this week.

Chantavarn Sucharitakul, assistant governor for financial markets operations, said the local currency had depreciated quickly this week due to both internal and external factors.

The US Federal Reserve will likely increase the policy interest rate this year since the economy is recovering steadily.

Gold prices, which plummeted below US$1,1oo an ounce, have triggered higher demand for the precious metal and the US dollar.

At home, worries about the economy and impacts from the drought, as well as public investment delays, have led to downward revisions of economic forecasts in the latter half of this year.

"Investors have sold some Thai assets as a result, while importers slightly accelerated their purchases. In any case, the Bank of Thailand has yet to find any signs of speculation.

"Although a weak baht is necessary to support economic recovery, too fast depreciation might create volatilities and hamper adjustments by the real sector. We're monitoring the situation closely," she said.

Since the beginning of the year, the baht weakness is in line with regional currencies. It traded at 34.5366/9336 at 8pm on Thursday.

In Asia, Bloomberg reported South Korea's won led losses as a report showed the economy expanded 2.2% in the three months through June, missing estimates and decelerating for a fifth straight quarter.

Asian exports are already contracting as growth falters in China, the top destination for many of the region's manufactured goods. Global funds have cut their equity holdings in six of eight Asian markets tracked by Bloomberg in July.

"There's a shift in investor interest from Asia to places like Europe due to growth considerations and expectations for higher yields," said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. "Growth fundamentals seem a bit weak for Asia."

South Korea's won fell as much as 1.1% to a three-year low against the dollar, followed by a 0.4% loss in Malaysia's ringgit. The baht dropped 0.2 percent. Indonesia's rupiah declined to the weakest since the Asian financial crisis that roiled markets in 1997-98.

Falling commodity prices are also weighing on raw-material exporters such as Malaysia, whose currency is Asia's worst performer this year amid a slump in Brent crude. The Bloomberg Commodity Index slid Wednesday to the lowest close since 2002, dragged down by a plunge in gold.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region's 10 major currencies, was little changed after earlier falling as much as 0.2% to a five-year low.

Growth in China, the region's largest economy, is projected to slow to 7% this year, the least since 1990. Overseas investors sold a combined net $2.5 billion of shares in South Korea and Taiwan this month, both of whom count China as their biggest export markets.

Elsewhere on Thursday, India's rupee dropped 0.2% and the Philippine peso fell 0.3%. Taiwan's dollar depreciated 0.3%, while the yuan and Vietnam's dong were both little changed at 6.2095 and 21,818, respectively.

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