Weak Thai tourism set to crimp baht’s year-end rally: analysts
Shipments are under further pressure from US tariffs
[BANGKOK] The Thai baht’s traditional year-end rally will be dimmed as Chinese tourists continue to shun the country and traders bet on interest rate cuts, according to analysts.
The baht is projected to rise about 1 per cent against the US dollar by year-end from early trading on Tuesday (Oct 21), a Bloomberg survey of strategists shows. That’s about half the average gain seen in the final two months of the year over the past 10 years. Sluggish exports may also limit upside, according to Credit Agricole CIB.
While the tourism high season usually supports the baht, those inflows “are not expected to feature as strongly”, this time, said Andy Ji, a strategist at InTouch Capital Markets in Singapore. If the Bank of Thailand turns more dovish and the government rolls out a gold trading tax, the baht could slide towards 33 per US dollar even if the greenback stays weak, he added.
A softer rally may offer some respite to policymakers after the baht’s more than 4.5 per cent advance this year already strained export competitiveness.
Shipments are under further pressure from US tariffs. The stronger currency has also made Thailand a more expensive destination for visitors, weighing on tourism – together with exports, these sectors account for about 70 per cent of the economy.
Foreign tourist arrivals are expected to fall about 6 per cent this year, the Tourism Authority of Thailand said – the first annual decline in a decade outside the pandemic. The slide reflects weak demand from key markets such as China, where safety concerns and a stronger baht have curbed travel.
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The currency’s “appreciation has squeezed exporters’ income and eroded competitiveness”, said Apichit Prasoprat, the vice-chairman of the Federation of Thai Industries. “It’s also hurting tourism.”
Markets are pricing at least one more rate cut within six months, according to swaps data compiled by Bloomberg, after an easing cycle that has delivered 100 basis points of cuts since October last year.
The central bank will keep monetary policy loose through next year due to the country’s weak economy and the risk of further global shocks, deputy governor Piti Disyatat said early this month.
Still, the baht could strengthen if growth rebounds, US-China tensions ease, the US dollar weakens as the Fed cuts rates, and gold prices stay near record highs. Nomura expects it to appreciate to around 31.3 per US dollar by year-end.
For now, analysts say authorities are likely to step in to curb excessive gains. Seasonal factors should offer some support to the baht, said Poon Panichpibool, a strategist at Krung Thai Bank.
“But if the baht is exceptionally strong against trading partners’ currencies, the Bank of Thailand could intervene.” BLOOMBERG
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