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Thai Central Bank Advises Hedging Baht Appreciation and New Forecast for Philippine Peso

In an acknowledgement of the Thai baht’s rapid rise against the US dollar this year, deputy governor of the Bank of Thailand, Mathee Supapongse, said this week that Thai companies should consider hedging against future baht appreciation.

Against the dollar, the baht has risen 7% so far in 2017, making the currency the second best performer in Asia behind only the Korean won, which is up nearly 8%.

The baht reached the psychologically important $0.03 on Thursday (USD/THB 33.33) for the first time since May 2015 on the back of a Fed-induced dip in the dollar which sent most Asian currencies higher.

With exports making up nearly 70% of Thailand’s economy, and with the US being Thailand’s largest export market, a high THB/USD exchange rate makes operating conditions difficult for Thai companies. Simply, the further the baht appreciates, the more expensive, and therefore less attractive, the country’s goods become to American buyers.



USD/THB 3 Month Chart

In comments reported by the Bangkok Post, Supapongse said that “we’ve advised the private sector to consider hedging to manage risks associated with the currency’s movement and to cope with global financial market fluctuations.”

When asked about possible intervention, Supapongse added only that “the Bank of Thailand will closely monitor the situation in the foreign exchange market.”

Thailand’s central bank manage the baht’s value under a ‘managed float’ regime, which means that the bank will at times intervene in FX markets to weaken the currency in order to maintain national competitiveness. Supapongse’s comments increase the likelihood of such an intervention should the THB/USD rate climb further from here.

The negative impact on Thai exporters from a stronger baht is perhaps compounded by the not-so-small matter of the Philippine peso falling against the dollar this year. The peso can be considered a rival to the baht because the Philippines, like Thailand, is a source of cheap manufacturing in Southeast Asia for Western businesses and is a popular travel destination in the region.

The peso, which is the only Asian currency to make losses against the dollar this year, has suffered in the face of a record Philippine trade deficit, a likely slowdown in remittances and martial law in the Philippine island of Mindanao, linked to the government’s ongoing battle with Islamic State militants.

Although the PHP/USD rate rose on Thursday to $0.0198 (USD/PHP 50.5), it remains down 2% this year, which puts the baht’s year-to-date gain against the peso at nearly 10%. The baht is now buying ₱1.517 and is at a nine-year high against its rival.

Unfortunately for those in the Philippines, forecasts for the peso remain gloomy.

In the first week of July, Standard Chartered’s Asia strategist, Divya Devesh, told ANC’s Market Edge program that the peso could fall as low as $0.019 (USD/PHP 52.5) over the next twelve months. This week, Macquarie’s Nizram Idris and Natixis SA’s Trinh Nguyen have both predicted a fall to $0.0192 (USD/PHP 52.0) by year-end.

If your business might be negatively impacted by exchange rate movements in the Thai baht or Philippine peso, consider reading BestExchangeRates’ guides to managing FX risk. For those travelling to Thailand or the Philippines and in need of local currency or sending payments to either country, you’ll save big on exchange rates by using our online comparison calculators for travel cash and 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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