Chart, BOT’s reserves : forward positions are going down, the coal mine canary makes some noise

I wrote last december :

The forward positions play the role of the coal mine canary.

What are forward positions ?

Forward positions = Bank of Thailand’s forward obligations to buy (long) or sell (short) foreign currency against Thai Baht (official definition)

With a maturity up to 1 year (read here).

For that matter, they are like a “peek” at how the reserves will behave in the future.

The forward positions are going down non stop since march 2008… Time for an update.

Furthermore something happened during the week of february 20… For the first time, the total foreign currency reserves + forward positions didn’t grow anymore on a year-on-year basis.

In other words, the growth has turned negative (-1,17 % on the week of february 20, and then -5,67 % on the week of february 27).


Now, let’s have a look on the amount of foreign currency reserves and the forwards positions (in billions USD).


The move is clear : forward positions are getting closer to zero… If we assume that forward positions are mainly in USD, and that the pace will continue, then we can say :

-this technical support for USD against THB (the Bank Of Thailand buying USD) is going to vanish in the coming weeks… it could affect the exchange rate… the THB could go up against USD.

But again, we have several factors, pushing in different directions, at work here. It’s complicated, thank you to read my previous article, particularly the listing of “traps” to avoid.

In december I spoke about the “Asian bias” (to let asian currencies going down versus USD, to support exports).

I wrote :

I think the BOT will -at one point- follow the same path. Therefore, I think the THB will go down versus USD.

Until now, I was right. USD touched 36 THB.


To summarize my position :

-follow closely the evolution of the forward positions (it’s a factor within the foreign currency reserves, and foreign currency reserves are a factor for the exchange rate USD-THB).

I still believe that the asian bias will increase… Exports are devastated by the global crisis (read here, a quarter wiped off in february for Thailand)… and this trend can’t be changed in the short and medium term.

The political and social pressures are going to mount… for some form of “competitive devaluation”.*

The decline in international reserves resulted from the rapid weakening of the baht to 36.50 to the US dollar, which made it necessary for the central bank to intervene to contain the currency volatility. (TNA)

Right now… the BOT is selling USD in order to weaken the USD versus THB, and therefore to curb the depreciation of the THB. 😉 Exporters are going to be unhappy…

The Bank Of Thailand is obsessed (and they are right) with “volatility“. Indeed, to work with a currency that moves too fast (up or down) is a real nightmare for businesses.

9 Responses to “Chart, BOT’s reserves : forward positions are going down, the coal mine canary makes some noise”

  1. 1 Prokster 9 March 2009 at 5:02 am

    Very good post, Too few people understand this.
    The Baht will certainly go lower. It will hit 37.30-37.50 against the USD soon enough, and should over the course of this year go beyond 38.
    If we see the CEE countires go the same way as SE Asia in the late 90’s, then it is quite possible 39-40 might be seen.

  2. 2 ray 9 March 2009 at 11:29 am

    its only matter of time. and this time round unlike 1997 when weak baht helped exports it will not help at all because there is no demand for goods abroad. it will be beneficial for tourists but there wont be a big rush for ppl to come to thailand for vacations because ppl need to save money..

    things will get very expensive locally. we import oil and when baht weakens and the dollar will also weaken because of the feds printing press ,thus oil will be more expensive in us dollar and even more expensive in baht and this will push food and other nesscities up in price. then i believe bad times have arrivith.

    red shirts/ yelow shirts are just distractions. this is a real problem and i am quite nervous because peopel dont understand the term ” greater depression” as this is the term they are using to describe this financial mess.
    on top of this the abisit govt is borrowing form japan to finance the mega projects!!! i cant believe the leaders of our nation are so short sighted.

  3. 3 mario andretti 9 March 2009 at 11:49 am

    sorry..i dont understand

    you say that thai central bank :

    “this technical support for USD against THB (the Bank Of Thailand buying USD) is going to vanish in the coming weeks… it could affect the exchange rate… the THB could go lower against USD.”

    if thai bank stops buy us against baht…..the baht should…….arise

    or i am wrong???

  4. 4 DuckVader 9 March 2009 at 12:13 pm

    Thanks. But as one Singaporean I talked to said, many southeast asians (his country included) live in la-la land. How does this break against the government, do the Bangkok middle class suddenly pine for the days of Thaksin (causing the current coalition to fragment) or do they grumble but fear the return of the former PM? My gut sense is more of the latter, and for this reason Thailand will stumble along, but not much of note will happen, even at 40THB/USD.

  5. 5 ThaiCrisis 9 March 2009 at 12:37 pm

    You’re right Mario, my mistake. It’s not “lower” but “up”. I mixed it up with my conclusion after (THB going down because of the political pressures, the “asian bias”… in order to save exports).

  6. 6 ThaiCrisis 9 March 2009 at 12:40 pm

    I agree Ray, it wouldn”t help a lot. We have indeed a global demand problem…

    However, we are on the political level here. And politicians can take bad decisions, for… political reasons. 😉

  7. 7 mario andretti 10 March 2009 at 5:13 pm

    thank thaicrisis…my english is very basic

    but…..i try to read you evvvvvvvvveryday

    you are great

  8. 8 ThaiCrisis 10 March 2009 at 6:01 pm

    Thanks for your support Mario. My english is basic too. It doesn’t matter. 😉

  9. 9 ThaiCrisis 12 March 2009 at 7:23 am

    Here is a copy of a comment, sent a by a reader (but on another article). I think it’s interesting here, within the article about foreign currency reserves, THB and exchange rate :
    Sriyan Pietersz, head of research at JP Morgan Chase in Bangkok believes the Bank of Thailand (BoT) has already allowed the baht to slide around 4% so far this year to “catch up” with Singapore, where the currency has fallen this year around 7.5% against the US dollar. “There is no strength or stability in the baht,” Pietersz says, noting that the BoT has recently narrowed its forward contracts in defense of the baht to around $5 billion from $26 billion. “The question is how they will manage the downward adjustment.”

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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.

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