SINGAPORE: The Thai baht hit a three-week high on Thursday after the prime minister-elect pledged to fight inflation while capital inflows fuelled expectations that underperformers among emerging Asian currencies might catch up with gains made by their peers.
Sustained inflows to emerging Asian stock markets helped most currencies in the continent offset the impact of a weaker euro before the European Central Bank's rate decision later in the day.
Earlier, Prime Minister-elect Yingluck Shinawatra said Thailand's policy of allowing the baht to float freely will be maintained under its new government.
Yingluck's comments "are important clarifications of Thai government policy," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore.
"Even though BoT (Bank of Thailand) manages FX policy, this should encourage the market to push the THB higher. A stable and strong baht is an important tool in helping to temper imported inflation."
So far this year, the baht has been the worst performing Asian currency with a 0.5 percent fall against the dollar amid global risk aversion and Thailand's political uncertainty.
Real interest rates in Thailand, based on headline inflation and the ten-year government's bond yield, stood at 2.34 percent, according to Reuters calculations.
This contrasts with South Korea, whose won currency is the best performing Asian currency so far this year. It has negative real interest rates, as inflation is higher than the ten-year government bond yield.
Thailand's higher real interest rates may help the baht gain.
The Thai currency cut pre-election losses as many investors cheered the result of the vote, which was seen as reducing political risks, at least in short term, and helped by inflows to emerging Asia at the start of the third quarter.
The inflows may help other underperformers, such as the Indian rupee, the second worst performer among emerging Asian currencies with a 0.6 percent gain versus the greenback this year.
The rupee is expected to find more support from weaker oil prices, given India's sensitivity on oil prices, dealers and analysts said.
"If we ask our specialists which trade we put on: do we sell dollars against the yuan? Do we sell dollars against Sing? Do we sell against the rupee? The rupee trade would be ahead of the others," Davis Hall, global head of FX and precious metals advisory at Credit Agricole Suisse's private client business, told Reuters.
On Thursday, the partially convertible rupee gained on a sharp revival in foreign equity flows.
The inflows to emerging Asia are seen as sustainable based on stronger fundamentals than developed economies unless global financial markets face a major risk aversion, dealers and analysts said.
"Unless we fear a major phase of risk-off, Asian currencies should continue to find fresh buyers... Don't underestimate how much people in the US and Europe is placing their hopes upon Asian demand," Hall said.
BAHT
Offshore speculators' demand lifted the baht to 30.25 per dollar, the strongest since June 15, although it gave up some gains on a weaker euro.
A dealer in Bangkok said the baht may find a resistance at around 30.30 as investors were keeping an eye on the single currency.
The 30.34-30.26 range is a cluster of support for dollar/baht formed by the convergence of the 55, 100 and 200-day moving averages.
The pair is seen eventually breaching the support and heading to 30.10, the 76.4 percent Fibonacci retracement of May-June rise.
The Thai currency is also set to gain other peers such as the Singapore dollar and the Indonesian rupiah with targets of 24.40-50 and 290, respectively.
But it may be premature to expect such a gain, some analysts said.
"Outperformance of the THB would ultimately have to depend on broad USD weakness, renewed growth momentum, and resumption of strong inflows. The latter two are likely to be lacking in the near term," said Emmanuel Ng, an economist at OCBC Bank in Singapore.
SINGAPORE DOLLAR
The Singapore dollar gained as macro funds and proprietary accounts appeared to enter fresh short US dollar positions amid expectations that the country may allow more currency appreciation to stem import inflation.
The city-state's currency also found support from stronger-than-expected Australia's job data.
PESO
The Philippine peso hit a nine-week high against the dollar on continuous demand from foreign banks.
The peso strengthened to as firm as 42.78, the strongest since May 3.
But the central bank was spotted buying dollars from 42.80 level downwards.
On Wednesday, the Philippine currency was the biggest gainer among emerging Asian currencies, boosted by views that Manila may allow the currency to strengthen to contain inflation.
But on Thursday, the central bank said it does not use the peso-dollar rate to manage inflation.
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