Thailand: Rising baht threatens exports and tourism

The Thai baht continues to appreciate against the US dollar, driven by the weak US economy.

A dynamic that worries exporters and penalizes the tourist attractiveness of the kingdom.

Weaker-than-expected US employment data is fueling speculation that the Federal Reserve will aggressively cut interest rates.

This Wednesday, August 6 at 7:40 a.m. (Thailand time) 1 euro is worth 37.43 Thai baht and 1 US dollar is worth 32.33 baht.

See: Thai Baht THB exchange rate

Baht boosted by weak US dollar

1,000 baht bills on 1 dollar bills.

The baht has recently strengthened, falling from 32.80 to 32.46 per dollar, according to Sanguan Jungsakul, senior director of money and financial markets at Krung Thai Bank.

The currency has appreciated by around 5-6% since the start of the year against the dollar, despite intervention efforts by the Bank of Thailand (BOT) to slow the pace of its strengthening.

"The main factor behind the baht's appreciation comes from external factors, particularly the disappointing US employment figures, which reflect a weakening US economy," Sanguan said.

"Markets expect the Fed to cut interest rates more than twice before the end of the year."

This decline in the dollar does not only affect Thailand: most Asian currencies are strengthened.

The Taiwanese dollar, the South Korean won and the Japanese yen have all appreciated against the greenback over the past five to six months, indicating that this is not a baht-specific phenomenon.

Thailand's international reserves hit record highs as the central bank intervened by buying dollars to moderate the appreciation of the baht, reflecting concerns about the currency's impact on export competitiveness.

Volatility concerns intensify

Bundles of 1,000 baht bills and 10 baht coins. Photo: Deposit Protection Agency

Beyond the appreciation trend, monetary analysts are increasingly concerned about the increased volatility of the baht.

Kanchana Chokpaisansilp, head of research at Kasikorn Bank Research Center, pointed out that the currency had experienced a dramatic fluctuation, falling from 32.87 baht per dollar on Friday to 32.46 currently.

A significant variation in one night that complicates planning activities.

"The worrying issue is that the baht's volatility has increased to around 7-8% since the beginning of the year, from historically low levels of 3-5%," Kanchana noted.

“This high volatility requires companies to implement comprehensive hedging strategies.”

This increased volatility is partly explained by the correlation between the baht and gold prices, which have fluctuated rapidly.

This link has amplified the currency's movements beyond what fundamental economic factors would suggest.

Kasikorn Research Center forecasts the baht will weaken to 33.70 per dollar by the end of the year, suggesting some relief for exporters.

Export competitiveness in jeopardy

Rice export. Photo montage: The Nation Thailand

Roong Sanguanruang, senior director of global market planning at Bank of Ayudhya, warned that if the baht crossed the 32-to-dollar threshold, it would pose a major obstacle to Thai exports.

The currency is expected to trade in a range of 32.25 to 32.85 this week.

Mr. Roong said:

"We believe the baht could appreciate beyond 31 per dollar in the fourth quarter as US trade protection measures risk making the US economy more sensitive and increasing the likelihood of a Fed rate cut."

The analysis suggests that Thailand can no longer rely solely on exchange rate advantages to boost its exports.

Government intervention may be necessary to support industries affected by currency fluctuations, with assistance potentially needed on a case-by-case basis.

See: Thailand dethroned: Vietnam becomes the 2nd largest rice exporter

An impact also on tourism, to the benefit of Japan

Tourists on a street in Osaka, Japan. Photo: Nikada

The continued appreciation of the baht is not only affecting exports: Thai tourism is also suffering, particularly among European, American and Japanese visitors, for whom holidays in Thailand are becoming more expensive.

Conversely, Japan is benefiting fully from the fall of the yen, which has reached its lowest levels in almost thirty years against the dollar and the euro.

This depreciation makes the country much more attractive to foreign tourists, particularly Asian ones, including Thais themselves, who are now tempted by cheaper trips to Japan.

This difference in tourist competitiveness is beginning to be felt:

Analysts say Thailand could lose tourism market share if its currency remains strong, as other Asian destinations adopt looser monetary policies to attract visitors.

See: Japan dethrones Thailand as top tourist spot

Regional Currency Trends

Banknotes from different countries.

Asian currencies generally strengthened on Monday, with the Malaysian ringgit leading the way, rising nearly 1 percent against the dollar to 4.233 ringgits per dollar.

The Indonesian rupiah and the Taiwanese dollar also recorded solid gains, up to 0.7%.

The dollar fell more than 1% on Friday following disappointing US jobs data, which reinforced market expectations for a Fed rate cut in September.

Christopher Wong, currency strategist at OCBC Bank, noted that the aggressive dollar sell-off has pushed Asian currencies higher as markets bet heavily on the Fed easing monetary policy.

Attention now turns to monetary policy decisions in Asia, with central banks in Japan and Singapore keeping rates unchanged last week.

India's central bank meets this Wednesday, while Thailand's monetary policy committee meets next week.

Thailand's central bank is expected to cut rates two to three times this year, potentially bringing the benchmark rate down to 1%, although analysts say a cut to 0% in 2024 is unlikely.

Monetary dynamics reflect broader global economic changes, with the "American exceptionalism" that previously supported the dollar now being challenged following the release of weaker economic data.

The coming weeks will be decisive: the decisions of central banks in Asia and the evolution of the US economy will determine whether the baht will continue its upward trajectory or finally begin to decline.

See also:

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19% Customs Duty: Thailand's Concessions to the United States

Trump imposes 19% tariffs on Thailand and Cambodia

Thailand postpones tourist tax due to drop in tourism

Tourism: Thailand under pressure from its neighbors and US taxes

Source: The Nation Thailand