Baht’s Rally Stalls as Thailand Battles Virus Pandemic Fallout
An employee places a bundle of Thai 1,000 baht banknotes in a money counting machine (Photographer: Brent Lewin/Bloomberg)

Baht’s Rally Stalls as Thailand Battles Virus Pandemic Fallout

A tug-of-war is building for Thailand’s baht as concern about the nation’s virus outbreak counters the support from its current-account surplus.

Tailwinds for the baht are fading after it breached the key level of 30 per dollar as a jump in domestic infections weighs on economic growth. Traders are now trying to determine if the currency’s recent pullback is a pause en route to it testing the year’s high of 29.542 or the start of a weaker trend.

The baht’s reversal of fortunes illustrates how a rally in emerging Asian currencies risks unraveling as a relentless rise in infections worldwide clouds the outlook. Still, if the baht’s gains fade, this will help boost Thailand’s exports and ease pressure on policy makers to intervene.

Baht’s Rally Stalls as Thailand Battles Virus Pandemic Fallout

While the authorities have refrained from imposing a wider lockdown to stem an outbreak of infections in a coastal province, the outlook remains uncertain. Last week, the Bank of Thailand lowered its forecast for next year’s economic growth to 3.2% growth from 3.6%, saying the estimate “has high risks, depending on the Covid-19 outbreak and vaccine.”

Tourism, a key engine of growth, may remain weak. The central bank expects Thailand to welcome 5.5 million tourists in 2021 -- down from an estimate of 9 million as recently as September -- and 23 million in 2022. That’s well below the 40 million figure from 2019.

The baht has fallen slightly since reaching an 11-month high in December and traded at around 30.01 on Friday.

Bright Spot

But, the picture isn’t all grim. The nation’s current-account surplus has provided a buffer for the baht as the economy reels from the slump in tourism and trade. A report due Wednesday is forecast to show the excess narrowed to $610 million in November from $985 million the previous month, according to a Bloomberg survey.

The surplus may get a boost when Covid-19 vaccines come online as a resumption in travel lifts Thailand’s tourism sector.

The dollar’s direction is also key for the baht.

“As the new U.S. administration takes office, we will pay attention to the outlook for monetary and fiscal policies in the U.S., which will set the tone for the dollar,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Typically, strong fiscal support and continued monetary accommodation will be risk positive, boding well for Asian currencies including the baht.”

The opposing factors appear evenly balanced at the moment. The median forecast of analysts in a Bloomberg survey is for the baht to finish the first quarter at 30.1, not far from the current level.

Below are the key Asian economic data and events due this week:

  • Monday, Dec. 28: Japan industrial production and BOJ summary of opinions, Malaysia trade balance
  • Tuesday, Dec. 29: South Korea consumer confidence
  • Wednesday, Dec. 30: South Korea business surveys and industrial production, Thailand BoP current-account and trade balance
  • Thursday, Dec. 31: China manufacturing and non-manufacturing PMIs, South Korea CPI, India BoP current-account balance
  • Friday, Jan. 1: South Korea trade balance

©2020 Bloomberg L.P.

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