The Baht recently hit the highest level in more than five years at THB31.07/USD in line with the Yuan and other regional currencies. The US Dollar, however, faced a sell-off amid hopes that negotiations between the US and China, aimed at reducing their trade dispute, will yield positive results. Easing concern of investors toward the US-China trade spat has, therefore, dampened demand for such safe assets as the US Dollar and Japanese Yen.
It is worth noting that although foreign investors have held a net selling position in both the Thai stock and bond markets, with a combined worth of approximately THB20.4 billion, since early 2019, the Baht has appreciated quite substantially against other Asian currencies, in particular the Yuan, being Thailand's key trade partner. The Baht has rallied around 4.7 percent, making it the best-performing currency in Asia, while the Yuan has appreciated 2.2 percent, the third-best performer after the Indonesian Rupiah that has risen about 3.7 percent. We at KResearch view that the strengthening Baht relative to currencies of Thailand's trade partners and rivals may put more pressure and affect businesses in the export and tourism sectors.
Looking ahead, key factors that may affect the Baht over the short term include the outcome of US-China trade talks, interest rate signals from the FOMC Meeting scheduled for March 19-20, 2019 and other issues, such as BREXIT. KResearch views that if there are positive results in the US-China trade negotiations and the US is flexible toward the deadline for imposition of higher tariffs on Chinese imports or the Fed signals that it will further delay a rate increase at the March meeting, the US Dollar may soften further. As a result, the Baht will likely rise steadily, having leaned toward THB31.00/USD recently.
Aside from the business sector, the stronger Baht will present a challenge to the relevant Thai authorities because they have limited tools to deal with its volatility and any measure affecting capital movements may not a viable option when abnormal signs of foreign capital flows into the Thai financial market have not been found.