JPMorgan is recommending a ratio Thai baht call spread to take advantage of further appreciation against the U.S. dollar. The baht has been the outperforming currency in Asia this year, strengthening around 9% against the U.S. dollar due to an improving current account position, foreign inflows in the equity market and benign support for appreciation by the Bank of Thailand to dampen inflationary pressure from oil prices, noted Claudio Piron, regional currency strategist in Singapore at JPMorgan. "We see a continuation of the trend and consequently expect a modest amount of further appreciation."
The house, which is forecasting THB37 by year-end with spot last week around THB37.6, is suggesting investors buy a two-month THB37.7 call/USD put against a two-times notional short THB36.7 call/USD put. The maximum profit is 265 basis points at THB36.7 while the main risk is potential further strengthening with the investor starting to lose money if the trade expires at THB35.91.
The two-month time frame was selected as investors in such strategies, mainly hedge funds, prefer shorter time frames for emerging market positions. "It's quick and opportunistic," noted Piron.
