US dollar fall to shore up baht in 2020

December 13, 2019

The baht’s value is expected to continue its upward trend, reaching 29.25 against the US dollar in next year’s final quarter as the greenback assumes a path to depreciation, says Bank of Ayudhya (BAY).

Although the local currency’s value is projected at 30.40 against the dollar by this year’s end, the baht will likely hit the 29 range in early 2020, rising to a high in the final quarter of 2020 because of looming dollar depreciation propelled by US political risks and additional monetary easing by the Federal Reserve, said Tak Bunnag, head of the global markets group at BAY.

“The baht’s appreciation is still anticipated, but the pace has the potential to slow down and move in line with other regional currencies,” Mr Tak said. “The baht is projected to appreciate by around 1-2% next year.”

The local currency is forecast to move between 29.25 and 31 per dollar in 2020, according to BAY.

The baht has been Asia’s best-performing currency throughout this year, up 7.7% against the dollar as of Dec 12, Reuters reported.

The baht has strengthened by 16% during the past four years, according to BAY.

Based on the assumption that the Fed will continue with monetary easing, funds will move into emerging-market economies to capture higher bond yields, Mr Tak said.

High bond yields will be targeted by investors in Indonesia, Malaysia and the Philippines, he said.

The Bank of Thailand’s Monetary Policy Committee can only cut the policy interest rate once next year, he said, as the effectiveness of monetary easing is limited, while another rate cut would see domestic bond yields decline further.

The US-China trade negotiations, the 2020 US presidential election, the progress of Brexit and the appointment of a new Bank of Thailand governor next year will determine Thailand’s monetary policy direction, Mr Tak said.

Roong Sanguanruang, vice-president for global markets research at BAY, said the Bank of Thailand is expected to separate the imports and exports of gold from the calculation for the exchange rate to help stabilise the baht’s value, since gold imports make up 19% of total imports.

US political developments and the Fed’s interest rate decision are factors determining next year’s movement of fund flows, Mrs Roong said.

“We don’t think there will be a recession in the US or the global economy,” she said. “Thailand’s economic growth will remain slow, and this will induce companies to refrain from hiring new employees, with lower investment and decreased working capital among corporations foreseen.”

Big-ticket infrastructure investment projects are a beacon of hope for a boost in next year’s economic growth, she said. BAY forecasts Thailand’s GDP growth at 2.4% this year and 2.5% the next.

Source: Bangkok Post