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Thailand joined a growing chorus of developing nations expressing alarm at the rapid appreciation of their currencies as increased monetary easing in the US and Japan spurs demand for higher-yielding assets.
The baht climbed to a 17-month high on Thursday, before retreating after Finance Minister Kittiratt Na-Ranong said the exchange rate was “not at a good level” and exporters would 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 January 1, boosting the supply of US currency, and Japanese Prime Minister Shinzo Abe is seeking “bold” monetary easing to end deflation.
Russia’s central bank warned last week the world was on the brink of a fresh “currency war” while policy makers in South Korea and the Philippines said they might 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 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.”
The Asia Dollar Index, which tracks Asia’s 10 most-used currencies excluding the yen, has risen 0.5 percent this year and the Bloomberg-JPMorgan Latin America Dollar Index is up 0.8 percent. Romania’s leu climbed 4.1 percent, Mexico’s peso 2 percent and the baht 2.7 percent, leading gains among 25 emerging-market currencies tracked by Bloomberg.
Romanian central bank deputy governor Cristian Popa said last week that the currency was “not distant from fair value” while Russia’s central bank has already intervened this year to stem gains in the rouble.
Bank of Thailand governor Prasarn Trairatvorakul said last week that capital inflows into short-term securities were driving the baht currency higher, adding that the central bank was “closely watching” the situation and had measures to deal with the issue if needed.
Taiwan’s central bank has often intervened to weaken its dollar in the past nine months, said 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.” – Yumi Teso from Bloomberg