Traders work the floor of the New York Stock Exchange after the Federal Reserve raised its benchmark interest rate on Wednesday. The benchmark Dow Jones Industrial Average shed 44 points at the end of the day. --Getty Images/AFP
Traders work the floor of the New York Stock Exchange after the Federal Reserve raised its benchmark interest rate on Wednesday. The benchmark Dow Jones Industrial Average shed 44 points at the end of the day. --Getty Images/AFP

Traders take cue from Fed rate rise to push baht, stocks higher

Economy March 23, 2018 01:00

By The Nation

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INVESTORS pushed the baht and Thai shares higher in response to a widely expected rise in the US Federal Reserve’s benchmark interest rate, though stocks failed to hold on to their gains by the close yesterday.

The currency, long in the spotlight after if its run-up against the greenback over the past year, appreciated to 31.16 to the dollar on yesterday's opening, while shares on the Stock Exchange of Thailand (SET) Index reached as high as 1,812.89 points in early trading before a late-afternoon descent below 1,800. 

Traders were responding the first rise in the US benchmark interest rate this year, announced by the Fed on Wednesday.

Jitipol Puksamatanan, a strategist of Krungthai  Bank, said that the baht’s rise to 31.16 to the US dollar, after the market opening, contrasted with its mark of 31.22 at the close of the previous day’s trading.

Although returns on US dollar assets will rise, markets viewed this rate increase as expected and the US dollar weakened on market disappointment over  the likelihood there would not be a faster pace of monetary tightening this year.

"We believe that the Fed has not hastened its rate hikes as the US economy and inflation look better in only the short term,” Jitipol said.

“In the long term, both may not expand as much as the Fed expects. More money-market fluctuations could prompt the Fed to take more caution on the rate hikes and its signalling, which could lead to market volatility.”

In the Wednesday decision, the Federal Reserve increased interest rates by a quarter of a percentage point to a range of 1.5-1.75 per cent after improved US economic figures, accelerating inflation and higher employment. The central bank forecast two more rate rises for 2018, while predicting three more increases next year and two more in 2020.

The Fed said that the US economic outlook had strengthened over the past months on expectation for inflation to rise in the coming months, taking the  rate close to the Fed’s target. This year's estimated US economic growth was revised up to 2.7 per cent from an earlier forecast of 2.5 per cent. US core and headline inflation is expected at 1.9 per cent this year.

Jitpol said the Fed made it clear to markets that the pace of rate rises would be at the slower end of expectations, with the signalling for the three increases this year. Many market observers had been factoring in four rises this year.

Jitpol said the Fed had decided to raise rates gradually, adding that if the central bank acted with too much haste, there would be volatility in the markets.

In the future, there is a higher probability for the Fed to raise the benchmark rate to 2.25 per cent as targeted, as markets had started to accept the rate increases, Jitpol said, adding that he expected the baht and other Asian currencies would not be affected too much.

The baht would move in line with the economic conditions of Thailand and its trading partners, he said. This week, the Thai currency is forecast to move in a narrow range of 31 to 31.30 per US dollar.

Jitipol said that this year, the direction of the baht is more likely to be determined by the state of international trade and the economic expansion of Thailand's trading partners, rather than on the interest-rate gap. He expects the baht to move with the support lines at 30.80 and 29.25 per dollar, and resistance at 32.40.

Thanarut Isaragult, a securities fundamental and technical investment analyst at Bualuang Securities, said that stock markets around the world rebounded after the Fed's latest rate rise. The Fed's dovish statement supported more market upside, he said.

On a technical view, the SET Index is expected to again test 1,800 points and investors would look for opportunities to the take the market higher on declines in stock prices, he said.

There have been positive technical signs including rebounds in the prices of big-cap stocks in the energy and petrochemical groups ,as well as for mid-cap stocks, following rises in the SET Index, he said.

Thailand’s benchmark index yesterday fell 2.88 points to 1,798.55 at the close of trading. Trading turnover was Bt50.4 billion.

According to Krungsri Securities, the gains the SET Index logged for most of the session yesterday were also driven by export growth of 10.3 per cent year on year in February, a historic high that month in the number of tourist arrivals at 3.56 million, and increases in global crude oil prices after a 2.6-million-barrel reduction in US crude stocks.