Baht’s 6% Rally Poised to Stall Without Return of China Tourists - BLOOMBERG
NOVEMBER 23, 2022
(Bloomberg) -- The rally in the Thai baht may be nearing an end without new catalysts, such as a return of Chinese tourists, as technical indicators show the currency is overbought.
The baht has advanced almost 6% against the dollar in the past month -- and was the second-best performing currency in Asia -- as China loosened Covid curbs and investors bet that the Federal Reserve will slow its rate hikes. The economy continues to expand, with third quarter gross domestic product growing by 4.5% from a year ago, according to data released Monday.
The currency’s gains have taken it into overbought territory from oversold just about two months ago, according to slow stochastics, a momentum indicator. In addition, resistance at its 200-day moving average and around its August high of 35.057 is poised to slow its advance.
“The baht’s value is looking fair in my model, so unless there is scope for more USD selling and more global risk on appetite, or more sequentially good China reopening news, it may consolidate around here,” said Galvin Chia, EM FX strategist at Natwest Markets in Singapore. “The recent technical range around 35.12 and 36.40 looks sensible.”
The dollar’s strength against Asian currencies has about three to six months left to run, according to a note from Goldman Sachs Group Inc. analysts.
The baht benefited from increasing expectations for the Fed to cut rates next year, but this tailwind may have run its course with several members of the US central bank still sounding hawkish. St. Louis Fed President James Bullard said Thursday policymakers should raise interest rates to at least 5% to 5.25%, leading to a selloff in markets.
The Bank of Thailand’s stance that it will stick to a slow tightening path won’t help the baht’s cause either. If the tourism-dependent currency is to push higher it needs new stimulus. While China has indicated a relaxation of some Covid-Zero rules, officials and state media have pushed back on optimism of a rapid reopening.
Tourism made up about a fifth of Thailand’s economy before the pandemic, with Chinese tourists accounting for about 28% of the visitors. The median estimate of analysts surveyed by Bloomberg for the baht is 37 for the fourth quarter. Its trading around 36.00 on Monday.
“What is missing for a larger rally in the baht are the China tourists and lower oil prices,” said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management. “China’s outbound tourism will be opened slowly, and in small steps. But when Chinese tourists are allowed to travel, Thailand would be among the biggest beneficiaries.”
Here are the key Asian economic data due this week:
- Monday, November 21: Taiwan export orders
- Tuesday, November 22: RBA Lowe speech, New Zealand trade balance, South Korea consumer confidence
- Wednesday, November 23: RBNZ policy decision, South Korea business surveys, Taiwan industrial production, Singapore CPI, Thailand customs trade balance
- Thursday, November 24: Japan PMI’s, Bank of Korea rate decision, South Korea PPI
- Friday, November 25: New Zealand consumer confidence and 3Q retail sales ex-inflation, Singapore industrial production, Malaysia CPI
--With assistance from Karl Lester M. Yap and Marcus Wong.
(Updates with latest data on the GDP and the Thai baht. A previous version of the story corrected the first paragraph to say the currency is overbought.)