Baht seen extending losses after dismal start to 2024

Thailand’s baht is set for its worst January since 2020 with a loss of nearly 4% versus the dollar, and heavy outflows signal more pain ahead for the currency.

The baht has gone from being emerging Asia’s top-performing currency in the fourth quarter to the biggest loser this year as global funds shun Thai assets amid a debate between the government and central bank on how to stimulate the flagging economy.

Deputy Finance Minister Julapun Amornvivat said last week the government is concerned that borrowing costs hovering at a 10-year high are holding back recovery. That’s after the Bank of Thailand pushed back against rate cut calls, saying lowering borrowing costs can’t fix structural problems in the economy. 

“The baht will continue to feel the drag from the growing political backlash against its current level of policy rates,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore. He’s looking for dollar-baht to trade in a range of 36.0-36.50 in the coming weeks. It closed at 35.63 last week.

Foreign investors’ net equity outflows have already totalled $808 million this year, while the benchmark stock index fell to a three-year low last week amid growth concern. The country’s debt isn’t proving attractive either as the market saw outflows after recent bond defaults and a major accounting scandal shook investors.

Traders will be watching data on Wednesday to see if the nation’s current account improved in December, after a deficit of $1.24 billion in November. Since then officials have waived visa requirements for Chinese travellers visiting the country to bolster tourism.

“The ongoing recovery in tourism is baht-positive, but per capita tourist spending and Chinese arrivals in 2023 have lagged pre-pandemic levels,” said Nicholas Chia, a macro strategist at Standard Chartered Bank SG.

A weak Chinese economy, and potential delays in the Federal Reserve’s rate cut are other headwinds for the baht as traders continue to reprice expectations of a March move and push the greenback higher.