Despite the Bank of Thailand's intervention to maintain stability, the baht yesterday bucked the trend of regional currencies by depreciating following a sell-off by foreign investors, said bank dealers.
The unit will likely remain highly volatile between 33 and 33.60 to the US dollar next week, said one dealer.
The baht gained in early-morning trade yesterday after dropping the most in four months on Wednesday following rumours - which were denied - that shook the stock market and the currency. The currency advanced 0.1 per cent as of 10am yesterday to 33.38 to the dollar.
However, it plunged in the afternoon after foreign investors continued to tell Thai shares late in the day.
The main stock index tumbled 8.3 per cent at one point yesterday, while the baht depreciated 0.4 per cent to 33.55 to the dollar and reached its weakest level since September 30 at 33.59, Bloomberg reported.
The currency closed at 33.50, while the Stock Exchange of Thailand (SET) Index closed down 5.3 per cent - the biggest one-day loss this year - at 692.72 points.
A Bangkok Bank dealer said the baht had depreciated from its Wednesday level due mainly to the foreign net selling of Thai stocks. In addition, better-than-expected corporate earnings in the third quarter encouraged investors to sell local stocks and the baht for dollars before taking their profits back abroad.
"The baht has been highly volatile, moving 20 satang today with the heavy buying of dollars by foreign investors. It was also affected by recent rumours in Thailand," the dealer added.
A CIMB Bank (Thai) dealer said the central bank had intervened in the market yesterday morning in order to stem the baht's volatility. However, it failed to reverse the selling pressure by foreign investors.
He predicted the currency would continue to depreciate this week, bucking the trend of appreciating regional Asian currencies. However, once the negative factors on the SET subside, the baht will likely become stronger in line with regional currencies, he said.
He said it was quite difficult to foresee the baht's trend at the moment, as it was still highly volatile and likely to hover between 33 and 33.60 to the dollar.
SCBS Investment Research said the baht was likely to remain strong over the next year, as the Bank of Thailand would likely work to keep its appreciation on a par with trading competitors, particular neighbouring countries that export similar products to the US.
"Both international reserves and outstanding bond numbers lead us to believe the Bank of Thailand is intervening in the exchange rate while capital inflows continue to flood the Thai economy," SCBS said in a research paper released recently.
Meanwhile, Bloomberg reported Asian currencies rose yesterday, led by Indonesia's rupiah and the South Korean won, as near-zero interest rates in the US prompted investors to shun dollars in favour of higher-yielding assets amid a global economic recovery.
The rupiah, won, ringgit and Indian rupee all climbed to their strongest levels in more than a year after US Federal Reserve minutes just released reinforced speculation dollars would remain in plentiful supply and that US rate increases remained some way off.
That encourages investors to seek cheap financing in the US to invest elsewhere where interest rates are higher, using so-called carry trades.
"The ongoing US-dollar carry trade is alive and kicking, which is pushing capital inflows into the region," said Rajeev Malik, an economist with the Macquarie Group in Singapore.
"At the same time, we're seeing improving growth in the region. All of that's going to ensure Asian currencies will strengthen."
The rupiah climbed 0.4 per cent to 9,330 to the dollar as of 4pm in Jakarta. It earlier touched 9,280, the strongest since September 2008. The won rose 0.8 per cent to 1,155.15, the ringgit 0.4 per cent to 3.3605 and the rupee 0.4 per cent to 45.95.
Poj Aramwattananont, an honorary adviser to the Thai Frozen Foods Association, said the central bank should make the baht's strength an urgent agenda item; otherwise, the Kingdom's exports in the current quarter and early next year would shrink by more than expected.
"The stronger-baht issue will seriously blunt the country's export competitiveness, particularly in shrimp exports," he said, adding that Thailand would lose export markets to rivals like Indonesia, Vietnam and India, as their exchange rates were weaker than the baht.
He said the government should put the exchange rate at the top of its top agenda rather than ask exporters to undertake risk-insurance management.
Pornsilp Patcharintanakul, deputy secretary-general of the Board of Trade, said the baht's dramatic overnight swing against the greenback would lead to a serious export problem.
"The only thing businessmen can do is concentrate on hedge management," he said.
Vallop Vitanakorn, secretary-general of Thai Garment Manufacturers Association, said every Bt1 appreciation would cause business losses of 3 per cent. The industry generates foreign-exchange income at an average of US$4 billion (Bt134 billion) per year.
Exporters are worried about quoting for orders in advance, as the fluctuating baht makes it very difficult to do so.
Vallop added that small exporters would face serious problems over hedge management, as they had lower financial credit than bigger companies.