USD/THB – Strong GDP showing decrease rate cut likelihood

Thai Q4 GDP recorded a 3.6% growth Q/Q, beating expectations for a +0.2% gain. Y/Y gain is at an astonishing 18.9% vs poll of 15.4%. 2013 GDP growth is estimated to be 4.5 – 5.5%. This is a much better showing compared to last week’s Euro-Zone’s data, which were all lower than analysts estimates. Domestic demand in Thailand remains strong, supporting GDP which is far from what could be said for the Euro-Zone. The strong domestic demand is expected to spillover to 2013, which will limit the scope for Bank of Thailand (BOT) to embark on further rate cuts, even though 2013 GDP estimate is lower than 2012’s full year growth of 6.4%.

Finance Minister Kittirat Na Ranong has requested BOT to cut rate earlier this year, together with many private exporters who were complaining that the strong Baht was eating into their profit margins and decreasing competitiveness in light of weaker USD and EUR over the past few years, and the YEN a more recent threat. However, Kittirat was surprisingly silent this time round when pressed by journalists on his call for lower rates. Bank of Thailand is scheduled to meet this Wednesday, with economists expecting a hold of rates this time round.

Hourly Chart

Hourly chart remains muted despite the strong signs against rate cuts (ignore the long Doji candle which is due to early market open NDF pricing which is not a representation of true market price). But Ichimoku is hinting of a bearish Kumo Twist even though price has been trading flat for Today. Perhaps we could see Baht strengthening more after Wednesday’s BOT announcement.  A break of the current Kumo and preferably below 29.80 may result in bearish acceleration to further lower targets. Stochastic is sitting at 50.0 which is mostly netural, but could also signal either a potential swing higher or lower should we break currently 29.90 resistance. From the looks of Today’s reception towards the GDP news, it is highly unlikely that USD/THB will be able to break the resistance without a rate cut on Wednesday.

Weekly Chart

Importance of 29.90 stands out on the weekly chart. Price is certainly on the downtrend from the fall of peak since late Jun 2012. However, we’re looking at a potential rebound from the downward trendline in late Jan ’13. A break from 29.90 opens up 30.50 resistance for bulls as a potential target, yet 29.90 remains the barrier keeping price to focus on downside with the trendline as further support. Stochastic readings is on the side of the bulls with a recent Stoch/Signal cross, however that signal requires further confirmation to establish a firm bullish bias with the strong downtrend backdrop we’re in. Perhaps BOT will provide the catalyst needed to stamp a clear direction from here out.

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