The Thai Baht, our beleaguered currency, has had something of a difficult few years. Successful debt and inflation crises have eroded the value of the Baht numerous times, not least the events of 2015-16, which saw the Baht plunge to some of the lowest levels against the Dollar in history.
However, things finally seem to be turning around. The erosion of the dollar continued capital flight into Asia, and a host of other factors have led to a sustained rally of the Baht that has pushed it to some of its highest-ever valuations.
While some detractors might think this is a temporary blip, here are three reasons for longer-term optimism.
1. The US Dollar is Set for a Weak 2021
Probably one of the most important factors for the rise of the Baht is the continued weakness of the US dollar, which most experts agree is going to continue declining throughout the rest of the year. Since Thailand holds huge amounts of dollar debts, a strong dollar is always bad news for the Thai economy.
However, it is becoming clear that the dollar has been overvalued for much of the past year and that a price correction is currently underway, one which will likely continue for at least the next 12 months. In fact, the weakness of the dollar may even lead to an increase in people betting against, or “shorting” the USD.
One way that traders in Thailand do this is via the use of CFDs, or contracts for difference. CFDs are financial products that allow anyone to use their smartphones to speculate on price changes in different currency pairs, such as USD-THB. If people do continue to short the Dollar, expect the price of the Baht to rise further.
2. Capital Flight Into Asia Will Continue
It’s no secret that the winner out of the recent economic crisis has been the major Asian economies. In fact, the capital flight into Southeast Asia has continued at unprecedented rates, even as the major western economies begin to recover.
The relative strength of Asia in handling the recent crisis has led to China, Thailand, and Singapore becoming the main beneficiaries of capital flight out of the US and Europe in the past 12 months.
This has, in turn, helped to push the value of the Baht up significantly. As Thailand continues to set healthy GDP and FDI growth predictions for the years ahead, it is possible that this upward swing will continue.
3. Increasing Bullish Monetary Policy from the BoT
Finally, it is worth noting that the policies of the Central Bank will do plenty to help bolster the position of the Baht in the months ahead. The past few months have seen some of the most significant strides towards economic liberalisation that Thailand has seen in years.
For one, local residents will now be allowed to deposit their own funds into foreign currency accounts in Thailand, while restrictions on foreigners buying property have also been reduced.
In addition, previous regulations that required foreign investors to complete a registration process before investing in Thai debt securities have also been dropped. All of these measures are aimed at stimulating FDI inflows and should certainly help to strengthen the Baht.
While the future is unknowable, especially in the world of forex, we have plenty of reason to remain optimistic about the Baht in the months to come.