Thai GDP could give baht rally further boost

Singapore

THE Thai baht is looking to repeat its performance as one of Asia's best currencies last year. Economic growth data due out on Monday will shed light on a key pillar of its recent strength and may help it stay in pole position at least through the first quarter.

After being beaten by only the yen in 2018, the currency has outshone all its regional peers so far in 2019, rising by 4 per cent against the dollar.

A robust domestic economy has helped it outperform both the won and Taiwanese dollar, which also have the benefit of a current-account surplus.

"The baht's outperformance is attributable to the real strength of the nation's fundamentals, including the current-account surplus," said Hironori Sannami, an emerging-market currency trader at Mizuho Bank in Tokyo.

"That also includes the fact that it is less susceptible to the US-China trade war relative to other surplus economies like South Korea and Taiwan."

Thailand is also less vulnerable to a downturn in the technology sector unlike South Korea and Taiwan, increasing the attractiveness of the baht, he added.

The tourism sector, by one measure worth about a fifth of the economy, is also recovering, noted Frances Cheung, head of Asia macro strategy at Westpac Banking Corp in Singapore.

Data due on Monday is expected to show the Thai economy grew 3.6 per cent on an annual basis in the fourth quarter, its 12th consecutive quarter of above 3 per cent growth.

The Bank of Thailand said the economy should continue gaining traction even though external demand might slow, in its Feb 6 policy statement.

In fact, the health of the economy was one reason the central bank has kept a hawkish tone, unlike many of its increasingly dovish global peers.

Despite leaving rates unchanged at 1.75 per cent at the latest meeting, two policy members voted for a 25 basis point increase, signalling a future rate hike remains a possibility, and further bolstering the relative attractiveness of the baht.

The Bank of Thailand is closely monitoring the baht and is ready to act on any excessive currency movements, governor Veerathai Santiprabhob told reporters in Bangkok last Thursday.

Last December's rate hike didn't stoke baht strength, rather dollar weakness, the current account surplus and a recovery in tourist arrivals are behind the move, he said.

Of course, one wild card is the country's upcoming general election on March 24, and investors are closely watching to see if political divisions erupt again.

Allies of exiled former leader Thaksin Shinawatra are seeking to woo voters with a plan to revive economic growth after a failed bid to run King Maha Vajiralongkorn's sister as a prime ministerial candidate in the election. BLOOMBERG