Thai Baht Expected to Continue Decline After Poor Start to 2024

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Thailand’s baht is facing its most challenging January since 2020, witnessing a nearly 4% decline against the dollar. The currency’s woes are compounded by substantial outflows, indicating further difficulties ahead.

Once the top-performing currency in emerging Asia during the fourth quarter, the baht has become the region’s worst performer in the new year. Global investors are steering clear of Thai assets amidst an ongoing debate between the government and the central bank on how best to invigorate the struggling economy.

Deputy Finance Minister Julapun Amornvivat expressed concerns over the economy’s sluggish recovery last week, attributing it partly to borrowing costs, which have remained at a 10-year high. However, the central bank has resisted calls for rate cuts, citing the structural challenges within the economy that cannot be fixed solely by reducing borrowing costs.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore, anticipates continued pressure on the baht due to growing political opposition to current policy rates. He foresees the dollar-baht exchange rate trading between 36.0-36.50 shortly, compared to its close at 35.63 the previous week.

Foreign investors have already pulled out a significant $808 million from equity markets this year, contributing to a drop in the benchmark stock index to a three-year low. Additionally, concerns over the country’s debt have intensified following recent bond defaults and a significant accounting scandal, leading to further capital outflows.

Market observers eagerly await Wednesday’s data to assess whether the nation’s current account situation improved in December, following a deficit of $1.24 billion in November. To boost tourism, Thai officials have waived visa requirements for Chinese travelers, which could positively impact the baht, but challenges remain as per capita tourist spending and Chinese arrivals in 2023 have not yet reached pre-pandemic levels.

Nicholas Chia, a macro strategist at Standard Chartered Bank SG Ltd., highlights weak economic conditions in China and potential delays in the Federal Reserve’s rate cut as additional hurdles for the baht. Traders are recalibrating their expectations for a March move by the Fed, contributing to upward pressure on the greenback and further straining the baht.