The Bank of Thailand said it’s concerned about a recent rapid appreciation in the currency and added it’s ready to take steps to curb a climb that could imperil an already fragile economy.
The baht’s near 2% rise against the dollar in the past month is among the steepest in Asia, aided by dwindling Thai coronavirus cases, an easing national lockdown and a shallower-than-expected first quarter economic contraction.
This backdrop may attract short-term capital flows to the baht, and its performance may be out of line with economic fundamentals, the central bank said in a statement on Monday.
“The Thai central bank is ready to take necessary steps to ensure baht strength doesn’t aggravate the fragility of the economy,” deputy governor Mathee Supapongse said in the statement, adding it will also scrutinise gold trading as that may have contributed to the currency’s performance.
Thailand’s economy relies on tourism and trade, both of which have been badly damaged by the novel coronavirus pandemic. Officials expect an economic contraction of as much as 6% this year and are sensitive to currency strength that could hamper competitiveness.
The government has started loosening a lockdown, though incoming flights are still banned for the tourism-dependent economy.
“We are wary that the pace of any recovery could disappoint,” says Irene Cheung, foreign exchange strategist at Australia and New Zealand Banking Group. She sees the baht weakening to 33.50 per dollar by end-June.
The baht’s rally may also face headwinds from technical factors. The currency breached resistance around 32.00 per dollar but further gains have been limited by its 100-day moving average. Slow stochastics, a momentum indicator, also shows that the baht is in the overbought territory.
The baht strengthened 0.2% against the dollar as of 8.50am, appreciating for a fifth straight day.