OVER the past 12 months, most foreign currencies have collapsed against the Thai baht, which means money from home is not worth as much as it was.

A year ago, one Australian dollar would have bought you almost 35 baht.

Today you would be lucky to get 22 or 23 baht.

The pound Sterling was once around the 75 baht mark, but that has dropped to about 50 baht, and the US dollar has plummeted to around 35 baht to the dollar.

Over the past 12 months, the US dollar has fallen 16 per cent, the pound has lost 25 per cent, the euro is down 16 per cent, the krona fell 28 per cent, and the Aussie dollar has taken a whopping 31 per cent hit.

Currency rates which were once talked about only by bankers and big businessmen, are now a hot topic with both expats and tourists.

There have also been massive losses in all asset classes, and pension funds have seen a decade of gains lost in the last year.

Many people living in Phuket who rely on income from pensions and investments have copped a double whammy.

Their pension payments have dropped, and the plummeting exchange rates have taken another huge bite out of their income and assets.

The baht has continued to appreciate against most major currencies, while our ASEAN neighbours currencies have fallen by as much as 16 per cent since beginning of this year.

But there is good news ahead, and the fundamental indicators seem to be pointing to a weaker Thai baht.

There are signs that the Baht is correcting in line with the other regional currencies, and it fell by 1.6 per cent last week to a 90 day low.

It was the biggest fall since June last year.

Bank of Thailand Governor, Tarisa Watanagasa, has hinted that the bank might lower this year’s growth forecasts as the deepening global recession hurts overseas demand.

This has prompted speculation that the Central Bank will allow the baht to weaken even further, and fuelled rumours that more interest rate cuts are on the way.

The Central Bank has already lowered its interest rate benchmark to 2 per cent, and has opened the door to future reductions.

This has been reflected by a 26.5 per cent decline in exports during January, the biggest drop in 17 years, according to the Commerce Ministry.

The Ministry has suggested that depreciating the currency is highly likely, because the economic indicators point towards zero growth at best.

This is further amplified by the reliance upon Thai exports, which account for 70 per cent of gross domestic production.

A further weakening of the baht would support that sector.

Where does all this leave those of us who rely upon pounds, euro’s, kronas, US and Aussie dollars?

In short, it would suggest that a near-term weaker baht is looking very likely, but you would be well advised to consider holding several currencies to hedge against the present volitity.

Commodity backed currencies like New Zealand, Australia and Canada have all done a bit of devaluing as capital poured out of risky assets following a clearly negative reaction to US policy efforts in a decidedly ominous G7 summit.

Further weakening could continue as investors shy away from risky investments, and stick to safe haven currencies like the US dollar.

On the other side of the world, the euro and pound have there own issues.

Both economies are in the midst of a deepening recession.

The UK is ‘the leveraged economy’ and EU Central bank has the highest exposure to Loans made to emerging markets ($4.5 Trillion, 90 per cent more than the US).

The short to medium term view is both currencies look likely to weaken against
the greenback.

The forecast for Scandinavian currencies is little better than their EU neighbours, and we should also see a strengthening of their currency against the dollar.

The krona appears to be less volatile than the euro and so far has escaped a major correction.

In the US, the gross domestic production retracted by -5 per cent, and it may be that the dollar could soon see a substantial correction against the major pairs.

It might be a good time to consider adding currencies as an asset class to your investment portfolio to hedge against the world’s current economic woes.

*Edwin Goulding is a Certified Financial Planner and Currency Analyst.

For further information, call 0898 711 748 or email eg@phuketinvestor.com