Baht up, shares down on Swiss move
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The Thai baht strengthened against US dollar today while Thai shares joined regional slide, after the Swiss National Bank's decision to scrap the currency cap.
At 2.33pm, the Stock Exchange of Thailand index lost 2.35 points or 0.15 per cent, staying at 1,521.03 points. Turnover was extremely thin at Bt18.9 billion.
Thai shares lost 0.21 per cent in the morning, in line with regional movements. Japan fell the most, by 1.88 per cent, followed by Korea's 1.30 per cent, Hong Kong's 0.77 per cent and Indonesia's 0.03 per cent. In Asia, only the stock markets in China and India surged, gaining 1.27 per cent and 0.04 per cent, respectively.
Thai baht in turn strengthened to 32.6 per dollar as of 1.52pm, from 32.75 yesterday.
Switzerland's move to jettison the three-year-old cap on the franc threw global markets into turmoil on Thursday, sending the currency and most European shares soaring while bond yields and Swiss equities tumbled.
In Europe, the franc jumped almost 30 per cent in the chaotic minutes after the Swiss National Bank stunned markets by lifting a 1.20-per-euro cap that was created in 2011 to avert deflation at the height of the euro zone crisis.
Swiss National Bank also lowered the interest rate to negative 0.75 per cent, to make Switzerland less attractive to savers. Sagging euro encouraged savers to channel money to Swiss banks, which has strengthened Swiss franc and hit its manufacturing and tourism income.
The dollar plummeted to 0.736 franc, the lowest level since 2011, before paring losses. Broader concerns about the euro sent it to its weakest level in 11 years against the dollar, down 1.5 per cent to $1.1618, while the greenback was last down 0.91 percent against the safe-haven Japanese yen, at 116.28 yen.
Profit jitters have shaken investors. Expectations for US fourth-quarter earnings have been scaled back sharply, with growth now estimated at 3.5 per cent, compared with an October estimate of 11.2 per cent, according to Thomson Reuters data.
All Swiss government bill rates and bond yields out to nine-year maturities traded below zero. German 10-year yields reversed an earlier rise to hit new lows, while French and Belgian bonds underperformed their euro zone peers as the two countries were considered the main targets for Swiss central bank investment in the euro zone.
“This marks a dramatic turn for the SNB (Swiss National Bank), who recently just reaffirmed its pledge to enforce the minimum exchange rate with “the utmost determination” after cutting rates on December 18,” UOB said in a research note.
his marks the SNB’s second round of monetary easing in just over one month, with interest rates on sight deposits now at -0.75 per cent and the Libor target range reduced to between -1.25 per cent and -0.25 per cent down from -0.75 per cent and 0.25 per cent.
UOB said it is unclear what the motive is. It remains unanswered whether this is a pre-emptive move ahead of ECB's QE. It noted that the implications of the end of the peg are far-reaching.
Though, the sharp appreciation of the Swiss franc against the euro and dollar will likely drag on Switzerland's already modest economic growth, UOB noted. In addition, the rising relative cost of Swiss products and services will weigh on exports and tourism.
UOB noted that risk aversion is likely to grip the markets ahead. Although the currency markets have somewhat stabilised, it expects market direction to remain clouded resulting in more volatility in the days ahead, as the market tries to decipher the impact and motive of the latest move.
"It is likely we could see some near-term softness in the dollar due to profit taking and positions-adjustment. This could lead to Asian currency weakness for the time-being. In the longer term, we still believe that dollar strength is still likely to exert itself especially if the Fed keeps to its monetary policy normalisation plan, which we think could begin as early as mid-2015," it said.
SNB President Thomas Jordan said in a press conference shortly after yesterday’s announcement that the growing divergence between “the monetary policies of the major currency areas have increased significantly”, which led to a depreciation of the euro against the dollar and in turn a weakening of the franc against the dollar.
He added that “in these circumstances the SNB has concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified”.
The Swiss franc could weaken further should the cap stay and the European Central Bank launch massive quantitative easing at the meeting on January 22, as that would weaken the euro further against US dollar.
