The Thai baht is bracing for further losses after a dismal beginning to 2024, poised to mark its bleakest January performance since 2020 with a nearly 4% depreciation against the dollar. Heavy capital outflows signal impending challenges for the currency, transitioning from being emerging Asia’s top-performing currency in the previous quarter to experiencing the most significant losses this year. Global investors are steering clear of Thai assets amidst a contentious discourse between the government and central bank on strategies to revitalize the faltering economy.
Deputy Finance Minister Julapun Amornvivat expressed apprehension last week over borrowing costs, which have reached a decade-high and are impeding economic recovery. This concern arises following resistance from the central bank against calls for rate cuts, asserting that reducing borrowing costs alone cannot address the structural issues in the economy.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore, anticipates sustained pressure on the baht due to mounting opposition to prevailing policy rates. He foresees the dollar-baht pair trading within the range of 36.0-36.50 in the upcoming weeks, after closing at 35.63 the previous week.
Foreign investors have already withdrawn a substantial $808 million from equity markets this year, coinciding with a downturn in the benchmark stock index to a three-year low amidst apprehensions about economic growth. Additionally, the country’s bond market is facing challenges, with outflows triggered by recent bond defaults and a significant accounting scandal unsettling investors.
Market participants eagerly await Wednesday’s data release to gauge if there has been an improvement in the nation’s current account balance for December, following a deficit of $1.24 billion in November. In efforts to boost tourism, Thai authorities have waived visa requirements for Chinese visitors, a move expected to positively impact the baht.
Nicholas Chia, a macro strategist at Standard Chartered Bank SG Ltd., notes the potential uplift in tourism as a positive factor for the baht, but highlights that per capita tourist spending and Chinese arrivals in 2023 remain below pre-pandemic levels.
The baht faces additional challenges from a weakened Chinese economy and potential delays in the Federal Reserve’s rate cuts, as traders recalibrate expectations for a March move and bolster the dollar.
Key Asian economic data releases scheduled for this week include:
- Monday, Jan. 29: New Zealand trade balance
- Tuesday, Jan. 30: Australia retail sales, RBNZ’s Conway speaks
- Wednesday, Jan. 31: Australia 4Q CPI, BOJ summary of opinions, Japan retail sales and industrial production, China PMI’s, Thailand BoP current account and trade balances, New Zealand business confidence, South Korea industrial production, Taiwan 4Q GDP, Philippine 4Q GDP
- Thursday, Feb. 1: India budget, China Caixin PMI, South Korea trade balance, Australia building approvals and 4Q business confidence, Indonesia CPI, Thailand business sentiment index
- Friday, Feb. 2: South Korea CPI, Australia home loans, 4Q PPI, New Zealand consumer confidence
