Asia’s Best Currency Is Driven by Tourists Pouring Into Thailand

(Bloomberg) – The Thai baht has rebounded so quickly in recent weeks on optimism about the country’s tourism-led growth that it has already met analysts’ year-end targets.

The currency rose 2.3% this month to around 35.45 per dollar, leading gains in Asia by a wide margin. In addition to increasing forecasts for tourist arrivals, the increase is also being driven by a narrowing current account deficit due to falling oil prices.

The rise means the baht has already reached the 35.2 mark for the fourth quarter, analysts polled by Bloomberg. The rapid gains are also feeding into the debate over whether the dollar has peaked, as analysts begin to weigh the right timing for a return to emerging markets, which saw capital outflows as the US aggressively hiked interest rates.

“We expect more upside for the Thai baht, although we are cautious about entering at current levels given the strong rally over the last few weeks,” said Mitul Kotecha, head of emerging markets strategy at TD Securities in Singapore. The currency’s recovery has been driven by a combination of dollar weakness, a change in policy by the central bank of Thailand, signs of a recovery in tourism and firmer economic data, he said.

The baht’s movements on Monday showed how vulnerable it is to global economic uncertainties. The currency fell 0.5% on the day, its biggest drop in more than three weeks after China cut interest rates and a report showed economic growth was weaker than economists had expected.

Thailand’s gross domestic product rose 2.5% year-on-year in April-June, below the median estimate for a 3.1% expansion in a Bloomberg survey.

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Earlier this month, a government spokesman said the nation expects to attract 10 million international tourists this year, compared to April’s forecast of 6.1 million. Visitors will surge to 30 million people next year, still shy of the 40 million who traveled to the country in the year before Covid spread.

This recovery is important for Thailand considering that the travel-related sector made up about a fifth of the country’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 as it suggests the country’s public health outlook is stabilizing.

Meanwhile, the Bank of Thailand’s first rate hike last week in more than three years failed to give the baht a strong boost as policymakers signaled their future moves would be gradual, while the US Federal Reserve is making big strides ahead of the rate increases. The currency actually fell following the policy move before ending the day slightly stronger.

The Oversea Chinese Banking Corp. warns against chasing the dollar-baht lower “when a rapid pace of recovery has yet to be confirmed while the BOT lags behind on monetary tightening,” said Frances Cheung, rates strategist at the bank in Singapore.

Still, positive signs such as better economic data have led some analysts to forecast a little more room for the baht to rise following recent gains.

Strategists at Malayan Banking Bhd including Saktiandi Supaat forecast the baht to rise to 34.80 in the first quarter of 2023. Scotiabank’s FX Strategist Qi Gao expects the Thai currency to range in a 35-36 range with a possibility of breaking the lower number in the future.

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Goldman Sachs Group Inc. maintains its bullish outlook on the baht and expects it to outperform non-Japanese Asian currencies in the second half of the year, strategist Kamakshya Trivedi wrote in an Aug. 5 note. He cited the recovery in tourism, a dip in oil prices and lower freight costs.

Here are the key Asian economic data due this week:

  • Monday, August 15: Japan 2Q GDP, China Industrial Production and Retail Sales, Thailand 2Q GDP, Japan Industrial Production
  • Tuesday, August 16: RBA Minutes of August Policy Meeting, Japan Tertiary Industry Index
  • Wednesday 17 August: Japan Core Machine Orders, Singapore Non-Oil Domestic Exports, RBNZ Policy Decision
  • Thursday 18 August: Unemployment Rate in Australia, Philippine Central Bank policy decision
  • Friday: August 19: Japan National CPI, Thailand Foreign Reserves

(Updates with baht decline on Monday in paragraph 5.)

©2022 Bloomberg LP

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