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A Strong Baht Concerns Thailand’s Exporters, Currency Reaches 17-Month High Versus Yen

Thailand’s baht remains one of Asia’s best performing currencies this year.

Against the US dollar, the baht has gained more than 5% in 2017 and is now buying $0.029, putting it back at 2015 levels.

Against the Japanese yen, although the baht has gained only half as much in percentage terms as it has against the dollar, today’s rate of ¥3.346 marks a seventeen-month high in the baht’s buying power.

Thailand’s currency has benefitted this year from an improved outlook for emerging markets.

In equities, the MSCI Emerging Markets Index is up 12% in 2017, easily outperforming the S&P 500’s gain of +8.5%. Of course, in order for foreign investors to buy assets in emerging economies, including Thailand, they must first buy the local currency, and this drives currency valuations higher.

As helpful as it may be to Thais taking overseas trips and buying British football clubs, a strong baht is not welcome by all.

For the country’s central bank and other policy makers, the baht’s current valuation is an obstacle to economic growth since exports make up nearly 70% of Thailand’s GDP. The further the baht appreciates, the more expensive, and therefore less attractive, the country’s goods become to foreign buyers.

The baht’s valuation is particularly important for small and medium-sized businesses in Thailand. Such businesses benefitted in the aftermath of the Asian currency crisis when the baht’s value more than halved from levels around $0.04 to $0.018 after the country scrapped its peg to the US dollar.

The baht’s rise may not be so bad if it appreciates in line with currencies from rival economies, such as the Philippines and Malaysia, which, like Thailand, are both sources of cheap manufacturing for Western businesses and popular travel destinations. This is not happening however.

Against the Philippine peso, the baht has rallied in near vertical fashion since lows set in 2015. The baht is now buying ₱1.49 and sits close to a seven-year high. In 2017 the baht has gained a further 7.5% against the peso.

Against the Malaysian ringgit, although the baht has fallen in recent months, it remains nearly 30% higher than it was in 2014, buying RM0.126.

In spite of what should be a reduction in the export competitiveness of Thai businesses because of an expensive baht, the country appears to be coping.  In fact, the most recent GDP data for Q1 painted a healthy picture of Thailand’s economy, which grew by 1.3% – the highest quarterly growth rate since 2012.

USD/THB 3 Month Chart

Despite the baht’s recent appreciation, not to mention its broader appreciation since the late 1990s back towards pre-currency crisis levels, the baht has not strengthened far enough for Donald Trump, whose administration put pressure on Thailand in March when it named the country on a list of sixteen potential currency manipulators. The implication of this being that if deemed “guilty” Thailand could face duties imposed on its exports to the US, which would once again make its goods more expensive and less attractive to buyers in its largest export market.

The Governor of Thailand’s central bank, Veerathai Santiprabhob, of course denied currency manipulation. In April, he told journalists that “Thailand has not adopted any exchange rate policies to gain an unfair competitive advantage in trade. I don’t think anyone has evidence [of this]. At times we might have to intervene in the foreign exchange market but that’s largely because of the intense capital inflows that we are on the receiving end of.”

If your business is likely to be negatively affected by further increases in the value of Thailand’s currency, consider reading our guides to managing FX risk. For those in need of Thai currency, you’ll get better exchange rates by using our online comparison calculators for THB travel money and THB foreign currency transfers.

Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.

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