Baht steadies as oil price drops in quiet trading

The baht had dropped 1 per cent in the past four trading days to the lowest level in more than a week, the second-worst performance among Asia's 10 most-active currencies outside Japan, on concerns that record high crude oil prices will fan inflation and slow growth."Those with long-dollar positions are taking some profit," said Sompob Asavaritikrai, referring to traders unwinding bets that the US dollar will continue to gain against the baht. "Other than that, it has been very quiet."

The baht traded at 32.25 per dollar yesterday morning in Bangkok, after rising as high as 32. The currency may trade between 32.10 and 32.50 this week, Asavaritikrai said.

Central banks of Korea, Taiwan, Indonesia, and the Philippines reportedly intervened in their currencies earlier."But that's not what's most interesting. Unlike the past couple of years, yesterday's interventions were not aimed at slowing currency appreciation, but to prevent depreciation instead," according to DBS Research Group yesterday.

It said after all, the primary reason why investors liked Asian currencies is the region's growth prospects, a bet that served them well in 2006 and 2007.

What changed in 2008 was that it was no longer GDP, but inflation that started to surprise on the upside. Initially, there was no panic over the early signs of inflation, DBS said.

Players seized inflation as another opportunity to extend their bets on selected Asian currencies (Chinese yuan, Singapore dollar and Taiwan dollar), reckoning that central banks will seek to curb supply-side price pressures via stronger exchange rates, the paper said. No one really expected inflation to surge as aggressively as it did over the past 6-12 months.

"Most were surprised inflation for some countries rose above their post-Asian crisis ranges, especially during a time when investors were sick with worry over the US credit crisis and its potential negative knock-on effects on the US economy.

"It was under these circumstances that players reckoned too much inflation can be detrimental to Asian currencies, more so for countries (Korea and India) that sharply increased their external liabilities in the past couple of years," DBS said.