Chinese Tourists Can Help Pull Thai Baht Out of Political Morass

(Bloomberg) -- Thailand’s baht slid to the lowest level since March last week but there are reasons to believe it will bounce back in coming months.

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The currency is poised to recover as an upsurge in Chinese tourists bolsters the nation’s finances, while any resolution to the political standoff that is dragging down Thai assets will likely lead to a relief rally, analysts say.

“A significant influx of tourists in the second half can contribute to a surplus in the current account by boosting tourism receipts, which will positively affect the value of the baht,” said Poonyawat Sreesing, a senior economist at Siam Commercial Bank Pcl in Bangkok. The baht may appreciate to as strong as 32 per dollar by year-end, about 10% stronger than the current level, he said.

The baht has been dragged lower in recent weeks as the coalition of pro-democracy parties that gained the most seats in the May 14 election have struggled to secure enough support from the pro-establishment senate to form a government.

The protracted stalemate helped send the baht to as low as 35.285 per dollar on Friday, the weakest level since March 1. The currency has now declined about 3.5% since the day before the vote, the worst-performing Asian emerging currency over the period after the Malaysian ringgit.

Landing Slots

Help may be on the way. Visitors from China and Australia should help lead an increase in tourism this month as airlines are in talks with the local airport authority to increase landing slots, the Tourism and Sports Ministry said in May.

Chinese tourist arrivals were only about 40% of pre-pandemic levels on a monthly basis as of April, which means there’s still significant room to improve in coming months as flight capacity increases, Chua Han Teng, an economist at DBS Group Holdings Ltd. in Singapore, wrote in a client note last week.

Initial signs the influx is filtering through the economy may be revealed in May current-account data due this Friday. The numbers unexpectedly deteriorated in April due to a slide in exports., leaving room for a potential upside surprise.

Some Negatives

Baht bears says there are plenty of reasons for possible further losses.

Weakness in the Chinese yuan may weigh on the baht, given the close correlation between the two currencies, said Vijay Kannan, an Asia macro strategist at Societe Generale Singapore Branch. The risks of worsening external demand and an underwhelming recovery in China could also negatively impact Thai exports, he said.

Diverging monetary policy between the US and Thailand may also drag the baht lower. The Federal Reserve is still signaling two more interest-rate hikes this year, while economists are almost certain the Bank of Thailand’s key rate has already peaked at its current level of 2%.

Close to Success

Those negatives may count for little though if there’s a breakthrough in the political deadlock.

Parliament will meet July 3, setting in motion the process of new government formation followed by the vote to elect a prime minister. The eight-party coalition of pro-democracy parties fronted by Move Forward said last week it’s close to securing enough support from the Senate to form a government led by its Harvard-educated leader Pita Limjaroenrat.

“If there is resolution on the political front, potentially there could be a correction lower in USD/THB,” Societe Generale’s Kannan said.

Here are the key Asian economic data due this week:

• Monday, June 26: Japan PPI, Singapore industrial production, Taiwan industrial production

• Tuesday, June 27: Taiwan unemployment rate

• Wednesday, June 28: Australia CPI, China industrial profits, South Korea consumer confidence

• Thursday, June 29: Australia retail sales and job vacancies, New Zealand activity outlook, business confidence, Japan retail sales, South Korea business surveys

• Friday, June 30: China PMIs and current-account balance, Thailand current-account and trade balance, Australia private sector credit, New Zealand consumer confidence, Japan jobless rate, industrial production and Tokyo CPI, South Korea industrial production

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