Southeast Asia: Thai currency best performer in 2018

This week, our currency update focuses on Southeast Asia.
One of the most relevant trends in the area is the current strengthening of Thai Baht. Looking at the last few months, you can see that the appreciation has been in place since November. By looking at the wider picture instead, e.g. the last 3 years, you can notice that this trend started at the end of 2016.

Apart from Cambodia and Vietnam, whose currencies are both pegged to the dollar, the greatest appreciation among floating currencies in Southeast Asia in 2018 has been experienced by Thai Baht. The currency appreciated by 3.6% in terms of effective exchange rate during the year.

Positive variations in effective exchange rate (2018)
Southeast Asia currencies

Source: StudiaBo elaborations on exportplanning.com data.

Thai Baht: factors supporting the strengthening

Looking at the short-term dynamics, you can identify the following main drivers behind the currency’s appreciation.

• Growth in inward foreign direct investment in 2018, in the wake of the upturn started in 2017.
• Positive current account balance, that bolsters the currency.
  As you can see from the following graph, Thailand is a net exporter. Despite recurring fluctuations, Thai current account balance has always been in surplus in the last few years.
  An important contribution to this surplus comes from services. In December the balance of components other than merchandise (services, income etc.) has benefitted, among other factors, from tourism: foreign tourists arrivals increased by 7.7% compared to the same period in 2017.

Thailand: current account balance (2016-2018)

Source: StudiaBo elaborations on Bank of Thailand data.

Even if the surplus persists, Thai trade balance has lowered in 2018 compared to the recent past. As a matter of fact, export have been affected by US-China trade war and by the Chinese economy slowdown. For Thailand, China is a key partner: it represents the first importer of Thai goods, followed by the US, and Thailand’s first supply market.
As regards Thai imports, latest data suggest that they have been growing – excluding gold – at usual pace, in particular for raw and intermediate materials, consumer goods and automotive products.

What about the next future?

Baht’s appreciation does not seem to represent a particular source of concern for the Bank of Thailand: if the currency appreciated so much to damage the country’s export through reduced competitiveness, it could intervene and buy foreign exchange reserves, as it did in the past.
On the other hand, the present analysis leads us to exclude the possibility of a significant depreciation. At present, we can therefore consider Thailand as a market with a low exchange rate risk.