Thailand GDP Data May Add Tailwinds to Surging Baht: Macro Week

(Bloomberg) -- The Bank of Thailand may have to work harder to rein in Asia’s top currency this year and protect the nation’s export competitiveness.

Despite various measures by the central bank to slow the baht’s appreciation, the Thai currency has rallied almost 8 percent in 2017 and is now trading close to two-year highs. If data next week confirm that economic growth is quickening, the baht could get a fresh tailwind.

“Thailand’s fundamentals remain strong,” said Masashi Murata, a currency strategist at Brown Brothers Harriman & Co. in Tokyo. “Growth has been firm and will stay over 3 percent. Low inflation pressure has continued. It’s hard to stop the baht’s appreciation under a weakening dollar.”

A recovery in global demand and tourist arrivals, as well as bond inflows have widened the current-account surplus this year, sending the baht to 33.188 per dollar, a level not seen since 2015. The gains have unsettled the BOT, which warned this week it’s watching closely the currency’s strength as it could hurt businesses. Exports make up over two-thirds of the Thai economy.

Thailand GDP Data May Add Tailwinds to Surging Baht: Macro Week

So far, aside from cutting the supply of short-term bills in April to discourage inflows, the BOT has relied mostly on verbal and direct market intervention to check the baht’s rally. Australia & New Zealand Banking Group Ltd. estimated the central bank has spent about $16 billion this year in foreign-exchange intervention with little effect, adding the authorities may need to implement more measures.

“They can continue to encourage outflows by further liberalizing regulations to make it easier for residents to invest overseas,” said Khoon Goh, head of Asia research at ANZ in Singapore. “The authorities could also establish a specialized institution for investing overseas, or raising target levels for overseas investment by existing public institutions.”

Overseas investors have bought over $6 billion of Thai bonds this year, pushing the 10-year sovereign yield to a nine-month low last week. Subdued inflation and the prospect of an interest-rate cut may continue to sustain bond inflows as developed economies begin to unwind their loose monetary policy.

Thailand’s economy probably grew 3.4 percent in the second quarter from a year earlier, the quickest pace in a year, according to a Bloomberg survey. The data is due Aug. 21.

“The pace of appreciation will concern Bank of Thailand,” said Charlie Lay, an analyst at Commerzbank AG in Singapore. “As such, there are risks of increased verbal jawboning.”

Below are key Asian economic data and events due next week:

Aug. 21
Thai GDP, Taiwan export orders and C/A balance
Aug. 22
Malaysia foreign reserves, Indonesia rate decision, Taiwan unemployment
Aug. 23
Malaysia CPI, Singapore CPI, Japan machine orders, Taiwan industrial production, BOJ bond operation, New Zealand pre-election economic/fiscal update
Aug. 24
New Zealand trade balance, Japan bond and stock flows, South Korea short-term external debt
Aug. 25
South Korea consumer confidence, Japan CPI and PPI, Thailand foreign reserves, Singapore industrial production, BOJ bond operation