The Baht has appreciated to test THB30.30/USD, representing the strongest in more than six years and Asia's best-performing currency. The Thai currency has strengthened by approximately 7.4 percent against the greenback, outpacing the Indonesian Rupiah and Philippine Peso, which have appreciated only 2.8 percent and 1.8 percent so far in 2019.
We at KResearch view that the Baht's value has been primarily driven by Thailand's current account surplus and its newfound status as a safe-haven currency rather than increased foreign capital inflows into Thailand. Aside from expectations towards the Fed Funds rate cuts and the Baht's fundamentals (such as Thailand's impressive current account surplus and international reserves), the fact that the Baht is viewed by markets as a safe-haven during times of risk aversion has exerted upward pressure on its value while peers have weakened. Two major risks that warrant close monitoring in October are the US-China trade talks and possibility of a no-Brexit deal.
Looking ahead, the Baht will primarily be dictated by the US Dollar and Fed Funds rate. KResearch views that the Thai currency may either strengthen or weaken over the next 6-12 months depending on three factors: 1) the US economic outlook; 2) the US-China trade war; and, political issues in the US. We have assessed that in the worst case scenario, i.e., if the US economy weakens more than expected in 2020, forcing the Fed make more policy rates than anticipated by markets, the Baht might be pressured to strengthen further and this will likely present a huge challenge for Thai exports in 2020.