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Dollar to 36.32 Baht... will BoT be forced to raise rates now?


pgsanta
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36.32 clearly is a breakthrough at the supposed special benchmark of 36, where many thought the BoT would be forced to defend the Baht.

The next scheduled meeting to discuss monetary policy for the BoT is August 10th.  That said, I'm not sure how much longer the BoT can stave off calling a special meeting if the Baht continues to fall at this speed.

I am secretly hoping they hold off until August 10th, and then push out a small hike... purely for the selfish reasoning that I'd like to enjoy these dollar gains late this year.  With Oil starting what looks to be a significant price plunge, the dollar will probably give back a lot of these gains in a few months.

 

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1 hour ago, pgsanta said:

I am secretly hoping they hold off until August 10th, and then push out a small hike... purely for the selfish reasoning that I'd like to enjoy these dollar gains late this year.  With Oil starting what looks to be a significant price plunge, the dollar will probably give back a lot of these gains in a few months.

Until the Thai central bank can match the US Fed rate hikes, money will continue to flow out of Thailand and toward the USD. Thailand can raise their rate a full 100 basis points and still not catch the US. As Thailand raise their rates the dollar will slow, but it’s not going to stop going up for awhile yet. 
 

Oil is dropping on the expedition of a global recession. It will head back up as Russian oil starts dropping off the market.  One will help balance against the other. It’s a question of who wins (or better loses) out. I for one wouldn’t bet against oil going back up sonnet than later. 
 

The dollar isn’t tracking oil, it’s tracking interest rates. 

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39 minutes ago, EdwardV said:

Until the Thai central bank can match the US Fed rate hikes, money will continue to flow out of Thailand and toward the USD. Thailand can raise their rate a full 100 basis points and still not catch the US. As Thailand raise their rates the dollar will slow, but it’s not going to stop going up for awhile yet. 
 

Oil is dropping on the expedition of a global recession. It will head back up as Russian oil starts dropping off the market.  One will help balance against the other. It’s a question of who wins (or better loses) out. I for one wouldn’t bet against oil going back up sonnet than later. 
 

The dollar isn’t tracking oil, it’s tracking interest rates. 

No denying interest rates have a significant impact, but the current dollar rise isn't linked to interest rates alone.  The current trend started in 2020, and was exasperated by key economies running shifting trade balances that saw imports outpace export growth, causing greater dollar outflows, in essence creating international dollar shortages that are still present within the international system.  

https://www.cfr.org/blog/addressing-global-dollar-shortage-more-swap-lines-new-fed-repo-facility-central-banks-more-imf

The only thing that's been done to remedy some of these issues is the expansion of dollar swap lines.  

Oil, rates, the use of the dollar within the international trade system... all of these factors are pushing the dollar up right now.  My selfish concern isn't a suggestion that the dollar is tracking oil, but rather that recession concerns turn into reality, and oil at $60-70 a barrel would signify very strong downward pressures on the dollar.  

Anyhow, I hope I'm wrong, and you're right. 

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19 minutes ago, pgsanta said:

Anyhow, I hope I'm wrong, and you're right. 

All I can say is I would never bet on myself bring right. 

The problem with oil is it’s always so damn squirrelly. A recession would definitely drive down the price and I don’t see how we avoid one. Seems baked in at this point. Never mind most of the financial data out of China is flashing bright red. Not that the US is doing all that much better. I just see the Russian oil supply collapsing at some point. Whether it’s because of the EU ban, the insurance ban, the lack of western service companies running the fields, or coming secondary sanctions. When they go offline, the decrease in supply will drive the price through the roof. Hope I’m wrong. 

Do you read the resident economist who writes at the Bangkok post. Ex IMF guy, doest great articles. Here is one of his latest ones:

https://www.bangkokpost.com/opinion/opinion/2327178/how-far-should-interest-rate-hikes-go-

 

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2 hours ago, EdwardV said:

All I can say is I would never bet on myself bring right. 

The problem with oil is it’s always so damn squirrelly. A recession would definitely drive down the price and I don’t see how we avoid one. Seems baked in at this point. Never mind most of the financial data out of China is flashing bright red. Not that the US is doing all that much better. I just see the Russian oil supply collapsing at some point. Whether it’s because of the EU ban, the insurance ban, the lack of western service companies running the fields, or coming secondary sanctions. When they go offline, the decrease in supply will drive the price through the roof. Hope I’m wrong. 

Do you read the resident economist who writes at the Bangkok post. Ex IMF guy, doest great articles. Here is one of his latest ones:

https://www.bangkokpost.com/opinion/opinion/2327178/how-far-should-interest-rate-hikes-go-

Definitely a good read.  It’ll be interesting to see what the BoT does, and how the politicos influence their policy choices. 

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13 hours ago, pgsanta said:

Definitely a good read.  It’ll be interesting to see what the BoT does, and how the politicos influence their policy choices. 

The US Fed: 

At a news conference after last month's Fed meeting, Chair Jerome Powell suggested a rate hike of either one-half or three-quarters of a point was likely when the policymakers next meet late this month. The minutes released Wednesday confirmed other officials agreed that such an increase would "likely be appropriate." A rate hike of either size would exceed the quarter-point increase that the Fed has typically carried out. Last month, the Fed released projections showing that the officials expect to raise their benchmark rate to 3.4% by the end of this year. At that level, the Fed's key rate would no longer stimulate growth and could weaken the economy by making purchasing and hiring more expensive. The minutes suggest that the policymakers could potentially raise rates even higher than 3.4%.

Fed says sharply higher interest rates may be needed (msn.com)

While historically 3.4% isn't high, it still hasn't been there in a couple of decades. Problem is people are use to something close to zero, or even negative. Relatively speaking 3.4% would be huge. 

 

Goldman Sachs: 

Oil still likely to reach $140 a barrel despite recent price drop - Goldman Sachs | Seeking Alpha

 

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  • 2 weeks later...
44 minutes ago, Mohandas said:

It'll be at B43/B44 before the year's out.....

 

 

Don't give up your day job as a comedian!

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1 hour ago, Mohandas said:

It'll be at B43/B44 before the year's out.....

My guess is more that the US stops at about 40Baht but the Euro and others are going down then. Just the opposite from the first time, US/Euro  hit parity. At that time it was never the Euro allowed to get much over 50, so 1.5 US/1Euro needed to be handled the other way.

 

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I guess we'll have to wait and see.

All this speculative punditry will be put on hold until the false wealth/money manipulators figure out which way is up. 

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  • 2 weeks later...

Officials agreed Wednesday to a 0.75-percentage-point rate rise, which will lift their benchmark federal-funds rate to a range between 2.25% and 2.5%. The rate increase won unanimous backing from the 12-member rate-setting committee.

https://www.msn.com/en-us/money/markets/fed-raises-interest-rates-by-0-75-percentage-point/ar-AA1021NC?ocid=msedgntp&cvid=0071c9489d25479db3677d035d6c7406

The US Fed is still expected to hit at least 3% by the end of the year. This will continue to place upward pressure on the Dollar.  

 

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On 7/7/2022 at 1:49 PM, EdwardV said:

Do you read the resident economist who writes at the Bangkok post. Ex IMF guy, doest great articles. Here is one of his latest ones:

https://www.bangkokpost.com/opinion/opinion/2327178/how-far-should-interest-rate-hikes-go-

Excellent article. A proper analysis taking into account bond yields and the effect of different approaches on interest rates among reserve boards.

US bond yields will look more and more appealing as the Fed gets more aggressive with rate hikes. More capital outflow to the US in a poor performing global stock environment. 

Japan is a cautionary tale for the BoT. Everyone knows Japan will be last to increase interest rates (if at all). The yen is in a freefall, with more pain to come.

Further weakness for the baht if the BoT doesn’t follow the Fed.

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By the time this article is published, readers will know how much the US Fed funds rate has been raised for the fourth time this year. It does not really matter whether the rate is raised by 0.75% or 1% this time because the Fed will need to keep raising the rate (FFR) until it can effectively control inflation. For that, the inflation rate should be pushed down from the level of 9.1% (June 2022 figure) to around 2%. To be able to achieve such an inflation target, the Fed will need at least 5.25% to do the job. I do not have a sophisticated macroeconomic model to crank out the interest rate needed to bring down inflation to 2%, and I doubt that the Fed or IMF have such a model anyway.

These two big rounds of global liquidity injections caused world money supply to expand 35.9% during the decade of 2011-2020. In the earlier decade 2001-2010, world money supply grew at a normal rate of 8.4%. It is no doubt that excess money supply is the real cause of 2022 inflation, not the Russia-Ukraine war. This is, indeed, a classic case of demand-pull inflation. There is no proper way to deal with this type of inflation but to raise interest rates to mop up excess liquidity from the global monetary system. Of course, the price of this policy move is an economic  slowdown or even economic recession.

By the way, most people believe the US must be the world's number one culprit for inflation, after liquidity injections from three rounds of QEs and Covid stimulus packages. In fact, many believe that the US dollar will soon become worthless as Fed keeps printing money relentlessly. Wrong. The number one culprit for money printing is China as they injected 34% more liquidity, compared to the US, into their economy. By the end of 2020, the ratio of money supply to GDP was 211.9% for China and 111.5% for the US. The ratio is 123.4% for Thailand. No wonder there is a real estate bubble in China. Inflation is always caused by having too much money. To lower inflation, one must simply remove excess liquidity from the system by raising rates. The Fed is doing just that and there is a lot more to be done. It is painful for the economy, but there is no other choice.

https://www.bangkokpost.com/opinion/opinion/2355949/feds-rate-rises-might-have-way-to-go-yet

HIs latest column from today. Interesting and scary he thinks the US will end up closer to 5.25% before they start heading back down. He is completely correct in pointing out it's not from the war. While the war probably added, fact is inflation was roaring before Feb. I like the last point about the US and China. People usually don't see how much money the Chinese pump into their system. It's been this way for years. The dollar will keep rising until the USD to Baht rates equalize. It might take some quite some time. 

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1 hour ago, EdwardV said:

By the time this article is published, readers will know how much the US Fed funds rate has been raised for the fourth time this year. It does not really matter whether the rate is raised by 0.75% or 1% this time because the Fed will need to keep raising the rate (FFR) until it can effectively control inflation. For that, the inflation rate should be pushed down from the level of 9.1% (June 2022 figure) to around 2%. To be able to achieve such an inflation target, the Fed will need at least 5.25% to do the job. I do not have a sophisticated macroeconomic model to crank out the interest rate needed to bring down inflation to 2%, and I doubt that the Fed or IMF have such a model anyway.

These two big rounds of global liquidity injections caused world money supply to expand 35.9% during the decade of 2011-2020. In the earlier decade 2001-2010, world money supply grew at a normal rate of 8.4%. It is no doubt that excess money supply is the real cause of 2022 inflation, not the Russia-Ukraine war. This is, indeed, a classic case of demand-pull inflation. There is no proper way to deal with this type of inflation but to raise interest rates to mop up excess liquidity from the global monetary system. Of course, the price of this policy move is an economic  slowdown or even economic recession.

By the way, most people believe the US must be the world's number one culprit for inflation, after liquidity injections from three rounds of QEs and Covid stimulus packages. In fact, many believe that the US dollar will soon become worthless as Fed keeps printing money relentlessly. Wrong. The number one culprit for money printing is China as they injected 34% more liquidity, compared to the US, into their economy. By the end of 2020, the ratio of money supply to GDP was 211.9% for China and 111.5% for the US. The ratio is 123.4% for Thailand. No wonder there is a real estate bubble in China. Inflation is always caused by having too much money. To lower inflation, one must simply remove excess liquidity from the system by raising rates. The Fed is doing just that and there is a lot more to be done. It is painful for the economy, but there is no other choice.

https://www.bangkokpost.com/opinion/opinion/2355949/feds-rate-rises-might-have-way-to-go-yet

HIs latest column from today. Interesting and scary he thinks the US will end up closer to 5.25% before they start heading back down. He is completely correct in pointing out it's not from the war. While the war probably added, fact is inflation was roaring before Feb. I like the last point about the US and China. People usually don't see how much money the Chinese pump into their system. It's been this way for years. The dollar will keep rising until the USD to Baht rates equalize. It might take some quite some time. 

It's not scary if you have decent savings 

 

Especially in the US where most home owners are locked into 30 year mortgages

 

Here in Canada 1 year GIC accounts are paying 4%

 

 

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12 hours ago, TiT said:

37:1 coming soon

Yeah.....and creeping slowly.

up to B40 or B41 before the year's out, as some have already suggested.

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People are overestimating the impact of the fed rate increases, as evidenced by what's recently going on.  The rate movement obviously places pressures on the dollar, but they are less significant to the common export/import balances of countries that HAVE to utilize the dollar for base inputs, and PREFER to sell in U.S. dollars for their exports.

My gut feeling is the dollar still gives back some ground leading up to December, so long as the BoT doesn't decide to just ignore the situation. 

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1 hour ago, pgsanta said:

People are overestimating the impact of the fed rate increases, as evidenced by what's recently going on.

True and yet currency rarely travels in a smooth line. I think we might be seeing is the reaction to the Bank of Thailand signaling a rate increase on the 28th.

The Bank of Thailand is highly likely to raise its key policy interest rate at its Aug 10 meeting, a senior official said on Friday, as the country’s economic recovery gains more traction and as other central banks tighten monetary policy to contain inflation.

https://www.bangkokpost.com/business/2357266/rate-hike-highly-likely-says-top-bot-official

The unspoken question would be is Thailand buying Baht to control the rate?  

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  • 2 weeks later...

CPI figures show U.S. inflation slowed to 8.5% in July, and more significantly 5.9% excluding food and energy.  A further drop in August would mean the Fed course of action would open up fairly significantly.

I'm now very comfortable in my prediction that the dollar gives back most of the years gains by November.

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6 hours ago, pgsanta said:

CPI figures show U.S. inflation slowed to 8.5% in July, and more significantly 5.9% excluding food and energy.  A further drop in August would mean the Fed course of action would open up fairly significantly.


The Bank of Thailand (BoT) raised its key interest rate for the first time in nearly four years on Wednesday, lifting it by a quarter point as expected to fight surging inflation as the economic recovery gains momentum.


https://www.bangkokpost.com/business/2365507/bank-of-thailand-bot-hikes-rate-for-first-time-since-2018-to-tame-hot-inflation

That still leaves a widening gap between the two rates.

While the US inflation rate is slowing, it's still a lot higher than their target of 2.5%. The Fed is expected to raise the rate another .50 next month and it doesn't look like they will be backing down anytime soon:

 

Slowing U.S. inflation may have opened the door for the Federal Reserve to temper the pace of coming interest rate hikes, but policymakers left no doubt they will continue to tighten monetary policy until price pressures are fully broken. A U.S. Labor Department report Wednesday showing consumer prices didn't rise at all in July compared with June was just one step in what policymakers said would be a long process, with a red-hot job market and suddenly bouyant equity prices suggesting the economy needs more of the cooling that would come from higher borrowing costs.

Kashkari said he hasn't "seen anything that changes" the need to raise the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023.

https://www.reuters.com/markets/us/fed-now-seen-delivering-50-bp-hike-sept-after-inflation-eases-2022-08-10/

 

 

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23 minutes ago, EdwardV said:

That still leaves a widening gap between the two rates.

Which I would argue expectations have already largely been priced in when it looked like the Fed was hamstrung.  If August numbers come back with the same trend as July, the Fed will have significantly more wiggle room for year end target rates.

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