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The SET took a 1.82% nosedive to an intraday low of 1,382.7 on Thursday after the People’s Bank of China (PBoC) hiked the daily reference rate for its China renminbi (CNY), or Mainland yuan, for the third straight day and forex traders pushed the USD/CNY exchange rate to 6.4470 yuan per dollar. Investors could have been anxious to sell after the Thai market was closed on Wednesday due to the H.M. Queen’s birthday.
The PBoC said on Thursday that there’s no basis for depreciation to persist and that the central bank will step in to curb large fluctuations. Despite the huge early drop, the SET was able to bounce off the technical low to close at 1,404.15, down 0.3% for the day. The SET recouped some of the losses from the yuan devaluation hangover on Friday to close at 1,415.92, up 0.7% from the previous close. For the week, the index was down 1.04% as foreign investors continued selling into any rally.
It all got started on Tuesday when the PBoC began setting the yuan to the U.S. dollar at a new daily reference rate of 6.2298 yuan per dollar, compared to 6.1162 on Monday, and lets it trade as much as 2% on either side of what is known as the parity rate. Under the new methodology, the PBoC said the bank sets its reference rate based upon the previous day’s close, foreign-exchange demand and supply, as well as changes in major currency rates. The sudden move by the PBoC to devalue the yuan against the U.S. dollar by as much as 1.9% on Tuesday sent the global financial markets into a tailspin.
The PBoC can’t do much else to depreciate its currency in order to boost its exports, after trade data showed Chinese exports slumped 8.3% in July. Widening the daily trading band from 2% could be seen by the United States as currency manipulation, as the United States already warned Beijing last year about Chinese currency depreciation.
The PBoC’s move to peg its currency to market forces could bring China close to a float in its exchange rate. Over the next three months, the International Monetary Fund (IMF) will decide whether the yuan should be added to the reserve currency basket and join the current members which are the U.S. dollar, the euro, the British pound and the Japanese yen.
The USD/THB exchange rate was quoted at 35.255 baht per dollar at the close on Friday, up 0.36% for the week, while the CNY/THB declined 2.61% to 5.5139 baht per yuan. A weak yuan could force China to import less and may discourage Chinese tourists from traveling abroad.
The 10-year Thailand Government bond yield printed at 2.74% at the close on Friday, down 2.49% for the week. The yield spread between the U.S. 10-Year Treasury Note, yielding at 2.201%, and the Thailand 10-Year Government bond, widened to 0.539 percentage points. Foreign investors’ net sells were about 12 billion baht so far this month, compared to net buys of 2.4 billion baht in August last year. The year-to-date foreign investors’ net sells topped 54.1 billion baht, up 117% from the same period last year.
From our technical viewpoint, the SET managed to bounce off the low and closed on Friday at 1,415.92, above the near-term resistance at the 1,412 level. The technical bounce was not all that bullish as there was more selling than buying. The SET lower high (L-H) chart pattern continues, as every high is lower than the previous high while every low is lower than the previous low. The new low L6 at 1,382.70 has emerged with the near-term head resistances are at 1,423.70 and 1,442, respectively. The key technical supports are 1,370, 1,340 and 1,315. |
