Thailand’s baht recovered so in recent weeks on optimism about the country’s tourism-driven growth. It has already hit analysts’ year-end targets.
The currency rose 2.3% to around 35.45 per dollar this month, leading to gains in Asia by a wide margin. Besides the increased forecasts for tourist arrivals, the advance is also driving a shrinking current account deficit due to falling oil prices.
The increase means the baht has already touched the 35.2 level forecast for the fourth quarter by analysts surveyed by Bloomberg. The rapid gains also fuel debate over whether the dollar has peaked. As analysts begin to weigh in on the right time to return to emerging markets. It had seen capital outflows as the U.S. embarked on aggressive rate hikes.
“We expect further gains for the Thai baht. We are cautious about jumping to current levels given the strong rally of recent weeks,” said Mitul Kotecha. Mitul Kotecha head of emerging markets strategy at TD Securities in Singapore. The currency’s rally was driven by a combination of dollar weakness. The Thai central bank’s policy shift, signs of a recovery in tourism, and firmer economic data, he said.
The movements in the baht on Monday highlighted how it is still vulnerable to global economic uncertainties. The currency fell 0.5% on the day. The 0.5% is the biggest drop in more than three weeks after China cut key interest rates. A report showed economic growth was weaker than economists had estimated.
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Thailand’s gross domestic product rose 2.5% in April-June from a year earlier, below the median estimate of a 3.1% expansion in a Bloomberg survey.
A government spokesman said the nation expects to attract 10 million international tourists. That is Year up from the 6.1 million forecasted in April. Visitors are forecast to increase to 30 million people next year. It is still down from the 40 million who traveled to the country in the year before the spread of Covid.
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That rebound is important for Thailand. The travel-related sector accounted for about one-fifth of the nation’s economy before the pandemic.
The government’s decision this month to downgrade Covid-19 to the same category as influenza is another positive factor. It suggests the nation’s public health prospects are stabilizing.
Meanwhile, the Bank of Thailand’s first-rate hike in more than three years last week did not give the baht a strong boost. Policymakers signaled that its future moves will be gradual, at a time when the U.S. Federal Reserve is pressing ahead with large rate hikes. The currency fell after the policy move before ending the day a little stronger.
Oversea-Chinese Banking Corp. warns against chasing the dollar-baht lower “when a rapid pace of recovery has not yet been confirmed. The BOT is lagging policy tightening,” according to Frances Cheung, the bank’s rate strategist in Singapore.
Still, positive signs, such as better economic data, have led some analysts to forecast a little more margin for the baht to rise after recent gains.
Strategists at Malayan Banking Bhd, including Saktiandi Supaat, predicted that the baht will rise to 34.80 in the first quarter of 2023. Scotiabank currency strategist Qi Gao expects the Thai currency to fluctuate in a range of 35 to 36, with the possibility of breaking the lowest number in the future.
Goldman Sachs Group Inc. maintains its bullish outlook on the baht and expects it to overtake non-Japanese Asian currencies in the second half of the year, strategist Kamakshya Trivedi wrote in a note dated Aug 5. He cited the rebound in tourism, falling oil prices, and lower freight costs.
Here are the key economic data from Asia to be released this week:
- Monday, August 15: Japan’s GDP Q2, China’s Industrial Production and Retail Sales, Thailand’s GDP Q2, Japan’s Industrial Production
- Tuesday, August 16: RBA Minutes of the August Policy Meeting, Japan Tertiary Industry Index
- Wednesday, August 17: Orders for basic machines from Japan, domestic non-oil exports from Singapore, RBNZ policy decision
- Thursday, August 18: Australia’s unemployment rate, philippine central bank policy decision
- Friday: August 19: Japan’s National CPI, Thailand’s Foreign Reserves
(Updates with baht decrease on Monday in the 5th paragraph).
