Fuelled by an improvement in risk appetite and a pick-up in the number of foreign visitors to Thailand, the baht climbed on Wednesday to a four-year high of 31.1 per dollar. In doing so, the baht solidified its position as Asia’s best performing currency of the year.
Volatility in the baht had dried up in recent weeks, with USD/THB seemingly unable to break from a pocket of congestion centred around 31.5, but news on Monday that Thailand welcomed 3.6 million tourists in the year to February – a 20% increase on the year before – appeared to spur the baht on, as the currency has gained steadily against the dollar since then. Tourism remains a major contributor to Thailand’s economy, with recent estimates suggesting it accounts for 18% of GDP.
The baht has also been helped by a general willingness of investors to accept risk, evident on Wednesday from the outperformance of emerging markets and higher equity prices. The improvement in risk appetite followed Tuesday’s US inflation data which, to the relief of many, matched market expectations.
While strength in the baht continues to be welcomed by some – certainly by Thai holidaymakers and by Thais investing overseas – it remains a source of concern for Thai exporters, who face a loss of export competitiveness, especially given the baht’s notable outperformance of other regional currencies since 2015.
Among others concerned about baht valuations is the Bank of Thailand, whose governor, Veerathai Santiprabhob, said in January that the baht would not be allowed to appreciate to levels that would be detrimental to Thai companies. The bank would not, however, resort to targeting specific exchange rates, Santiprabhob said.
In March, the baht has also rallied to long-term highs against the Australian and Canadian dollar currencies, with respective rates now marginally above 24.5 AUD and 24.0 CAD. While the Australian dollar has recently found its feet, the Canadian dollar continues to take heavy losses against the baht.
Against the euro, the baht continues to favour rates between 38.5 and 39.5 per euro. Twenty-three of the past twenty-six weeks have ended with EUR/THB inside of this range.