After lagging other Asian currencies for most of the year, Thailand’s baht has staged a sharp rebound to outperform its peers.
The baht has rallied almost 1.5% in May after dropping over 7% in the first four months of 2020. The catalyst? Traders are betting Thailand’s tourism-dependent economy will recover swiftly from the virus-induced slump as economies begin to reopen.
“The sooner availability of a vaccine will mean a quicker recovery in industries such as retail and tourism, and as such currencies relying more on these sectors may respond more,” said Frances Cheung, Singapore-based head of Asia macro strategy at Westpac Banking Corp.
Yanxi Tan, a foreign exchange strategist at Malayan Banking Bhd. expects the baht to rise to 31.7 per dollar by year-end as the pandemic dissipates. The currency rallied as much as 0.5% to 31.872 per dollar on Tuesday, with sentiment bolstered by signs of progress in developing a vaccine against the virus.
Still, the baht’s rebound may be curtailed after the government warned the economy could contract as much as 6% this year due to the outbreak. The Bank of Thailand is expected to lower the policy rate by 25 basis points to 0.50% at a review Wednesday, according to a Bloomberg survey.
Analysts say a relaxation of curbs will boost confidence. Thailand has allowed shopping malls to resume business as part of a phased rollback of its lockdown, even as it remains in a state of emergency through May.
“Thailand has done well to contain the coronavirus outbreak, with the country gradually reopening businesses and easing restrictions,” says Chang Wei Liang, a macro strategist at DBS Bank in Singapore. “This has given investors confidence that tourism could recover over time, in turn supporting the baht.”