Thai baht falls as investors seek safety after coup

SINGAPORE: The military coup in Thailand triggered a sell-off in the baht on Wednesday as investors looked for safety in a knee-jerk reaction which dealers said would likely be limited unless there was an outbreak of violence. 

At 10:00 am (0200 GMT), the baht was quoted at 37.735 to the dollar, down from 37.305 late on Tuesday.

Dealers said the baht was not expected to fall below 38 to the dollar unless the military coup took a violent turn or signs emerged of internal divisions within the army. 

Satoru Ogasawara, a strategist of global foreign exchange research at Credit Suisse First Boston in Tokyo, said the political unrest in Thailand is affecting not only the baht but also other Asian currencies.

"The Thai baht is falling," Ogasawara said. "Since the situation is still unclear, I don't think the currency can recover easily."

But Asian currency trading has some tolerance to volatility due to the experience in the financial crisis in 1997, he said.

"These countries have tried to stabilize the financial system since then ... There is information that the king is moving to stabilize the politics. We need to carefully watch the situation," Ogasawara said.

In Singapore, Alvin Liew, an economist with Singapore's United Overseas Bank, said the baht's fall was a "knee-jerk reaction."

"There will not be any more severe impact on the currency ... right now everything seems to be set in place for a peaceful transition," he said.

"I don't expect any sharp movements in the currency unless the situation turns violent, which looks unlikely."

Thailand's armed forces seized power Tuesday from Prime Minister Thaksin Shinawatra in a late-night bloodless coup, revoking the constitution and imposing martial law after months of political turmoil.

Coup leaders declared Wednesday a national holiday and ordered top civil servants and key business chiefs to a 9:00 am (0200 GMT) meeting at military headquarters "to learn about the new policy".

Singapore's DBS Bank said in a report the market reaction to the coup "was considered to be relatively benign.

"The market was glad that that the Thai coup was peaceful so far and no one really subscribed to the idea of a repeat of the (1997) crisis given Asia's strengthened liquidity position and banking sectors," the bank said.

The 1997 Asian financial crisis was sparked when the Thai government allowed the baht to float freely in the face of a sharp deterioration in the country's balance of payments.

The currency tumbled, sparking a collapse in Thailand's financial system which then spread across Southeast Asia and the broader region and required a massive International Monetary Fund-led bailout to halt.