Stronger baht driven by recovering tourism sector

Holiday destination: Travellers walk through the arrival terminal at Suvarnabhumi International Airport in Bangkok. The baht is on an uptrend, given the momentum in the tourism industry as the number of visitors to Thailand continues to grow. — AFP

BANGKOK: Thailand’s baht has rebounded so rapidly in the past few weeks on optimism about the country’s tourism-led growth that it’s already hit year-end analyst targets.

The currency has jumped 2.5% to about 35.45 per United States dollar (RM4.45) this month, leading gains in Asia by a wide margin.

In addition to rising forecasts for tourist arrivals, the advance is also being driven by a narrowing current-account deficit due to falling oil prices.

The surge means the baht has already touched the 35.2 level forecast for the fourth quarter by analysts surveyed by Bloomberg.

The rapid gains also fed into the debate over whether the dollar has peaked, as analysts started to weigh in on the right time to return to emerging markets (EMs), which had seen capital outflows as the US embarked on aggressive rate hikes.

“We expect more upside for the Thai baht though we are cautious about jumping in at current levels given the sharp rally over the past weeks,” said Mitul Kotecha, head of EM strategy at TD Securities in Singapore.

The currency’s rebound 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.

A report showed yesterday that Thailand’s gross domestic product rose 2.5% in April to June from a year earlier.

That was below the median estimate for a 3.1% expansion in a Bloomberg survey.

Earlier this month, a government spokesman said the nation expects to attract 10 million international tourists this year, compared with the 6.1 million forecast in April.

The number of visitors is seen rising to 30 million next year, still shy of the 40 million who travelled to the South-East Asian country in the year before Covid spread.

That rebound is important for Thailand, considering that the travel-related sector accounted for about a 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, as it suggests that the nation’s public health outlook is stabilising.

Meanwhile, the Bank of Thailand’s (BoT) first rate hike in more than three years last week failed to give a strong boost to the baht, as policy makers signalled their future moves will be gradual, at a time when the US Federal Reserve is pushing ahead with big rate increases.

The currency actually fell after the policy move before ending the day a bit stronger.

Oversea-Chinese Banking Corp cautions against chasing the dollar-baht lower “when a rapid pace of recovery is yet to be confirmed, while the BoT is lagging in terms of policy tightening,” according to Frances Cheung, rates strategist at the bank in Singapore.

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

Malayan Banking Bhd strategists, including Saktiandi Supaat, predicted the baht would rise to 34.80 in the first quarter of 2023.

The Thai currency is expected to fluctuate in a range of 35 to 36, with the possibility of breaching the lower number going forward.

Goldman Sachs Group Inc maintains its bullish outlook on the baht and expects it to outperform non-Japan Asian currencies in the second half of the year, strategist Kamakshya Trivedi said.

He cited the tourism rebound, a dip in oil prices and lower freight costs. — Bloomberg

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