Traders sold at-the-money Thai baht straddles against the U.S. dollar last week in a bid to offload falling implied volatility. One-month implied volatility had dropped by Tuesday to 9.5%/10.5%, from about 10.5%/11.5% the previous Friday, said a trader in Singapore. Vol fell after Thai general elections over the week-end proved to be peaceful. The spot market was similarly assuaged. Traders, led by a few large U.S. banks, were mainly selling one-month volatility on Monday. By Tuesday the selling was frenzied in maturities out to a year. Similar trading patterns were evident in the Taiwan dollar and Korean won against the U.S. dollar, as these currencies tend to move together, he said. The spot stood at THB43.10 on Tuesday, compared to THB42.15 just before the Thai elections, said the trader. Most plays were likely speculative, he said. Notionals averaged USD5-20 million, he said.
Ronald Leven, a currency strategist at Lehman Brothers in Tokyo, said the Thai baht is expected to weaken over the next six months, and could reach THB46. This is largely because an anticipated slow-down in the U.S. economy would hurt Asian exporters. The central bank had been propping up the currency ahead of the elections, but is likely to stop doing so now, which would also point toward the baht falling against the dollar, he added. The recent interest-rate cut by the Federal Reserve will not likely benefit the baht because its central bank, and others in Asia, are expected to follow suit.
One-month implied volatility on the Thai baht against the U.S. dollar had been falling over the past few months but rose steeply from mid-December, according to a trader.
