Thailand will remove a 15 percent tax exemption for foreigners on income from domestic bonds, joining South Korea and Brazil in seeking to curb currency gains that threaten exports.

The move will help slow inflows into the debt market, Finance Minister Korn Chatikavanij said today. The baht has advanced 10.9 percent versus the dollar this year, the best performance among major currencies in Asia outside Japan, as the fastest economic growth in 15 years attracted global funds.

Developing nations have been selling their own currencies and taxing global investors to curb appreciation, prompting calls for the International Monetary Fund to play a greater role in monitoring capital flows and exchange-rate policy. Brazil last week doubled a tax it charges foreigners on investment in fixed-income securities to 4 percent to curb appreciation in the real, while Japan last month intervened for the first time in six years to restrain the yen.

"What Thailand is doing is similar to what Brazil has done and if you look at Brazil, their currency continued to strengthen," said Sim Moh Siong, a Singapore-based currency strategist at Bank of Singapore Ltd. "It may have a knee-jerk reaction and may slow down the pace of appreciation, but I don't think it will change the medium-term trend."

Eoin Treacy's view In 2007, Thailand's administration aggressively targeted the exchange rate with limited success and it even accelerated higher in early 2008. The credit crisis and associated lurch to 'safe haven' currencies fuelled US Dollar demand and it rallied from THB30.5 to 36 in a year. However, as the Thai economy pulled through the crisis with relative ease, upward pressure on the Baht resumed. It has strengthened for thirteen of the last fourteen weeks and is more overextended relative to the 200-day MA than at any time since at least early 2008. The US Dollar's two-month downtrend, while steep, remains consistent and any rally has so far been limited to approximately 30 ticks. A rally of more than that would be required to question the consistency of the decline and to suggest that demand is beginning to regain dominance beyond the short term.

Asian and Latin American government opposition to the strength of their respective currencies has been increasing as the US Dollar, Euro and Pound have declined. They are becoming ever more proactive in attempting to stem the advance of their currencies and Singapore appears to be one of the only countries with a relatively sanguine attitude to its currency's advance. South Korea, Indonesia, India and Brazil have been much more proactive in attempting to combat appreciation.

Competitive devaluation has a way of building its own momentum as increasing numbers of countries seek to weaken their respective currencies. However, the relative strength of different economies should eventually shine through. Asia's population centres and commodity producing Latin America have higher growth rates, lower leverage, lower debt and sounder fiscal policies than the USA, Japan and much of Europe which is a recipe for stronger currencies over the medium term.

In the short-term, the Asian Dollar Index is overbought relative to the 200-day MA and testing the 2008 peak near 116. While still relatively consistent it looks susceptible to at least a consolidation of recent gains and the currencies concerned would be best bought following a mean reversion pullback.

The Latin American Dollar Index has underperformed its Asian counterpart but as a result is considerably less overbought. It broke out of a yearlong range in September and a sustained move below 110 would be required to question medium-term upside potential.

Such has been the inverse correlation between the weakness of the US Dollar and strength of commodities and many of the world's better performing stock markets, that a significant US Dollar rally would likely signal the onset of a mean reversion correction for at least some of these markets.