The Bank of Thailand's foreign reserves....>

THAILAND: The Bank of Thailand's foreign reserves rose to a new record high of

$215.6 billion in March from $212.7 billion in Feb, suggesting that the BOT

continues to suppress upside pressure on the baht. 

-Such upside pressures are occurring in spite of the fact that interest rate

differentials against the U.S. continue to head in the U.S.'s favour across the

entire yield curve. The 2-year UST yield is currently 93bps above Thailand's

2-year bond yield, despite the recent rise in Thai yields. 

-While lower levels of inflation in Thailand justify some of the baht's recent

strength, they do not justify the currency trading at a four-year high. With

this in mind, baht weakness is looking increasingly likely. USDTHB has struggled

to push through 31.10 against the dollar and is showing signs of bullish

divergence with the RSI heading higher. 

-The BOT maintains that the growing interest rate differential with the U.S. is

not reason enough to hike interest rates, but we believe that should the

speculative THB rally reverse, policymakers may be be encouraged to change tack

as imported inflation pressures resurface.