MOST EXPORTERS are worried about the baht appreciating against the US dollar, fearing it will hit exports and farm incomes amid the slowing of both local and global economies.
“A stronger baht will hurt our rice price competitiveness amid weaker currencies in the region, such as India,” Charoen Laothammatas, president of Thai Rice Exporters Association told The Nation yesterday. This will then be passed on to the price of paddy rice, thus adversely affecting farmers, he warned.
Asked whether rice exporters will discuss the issue with the Bank of Thailand (BOT), Charoen said exporters have raised this issue with the central bank many times, but the baht remains stronger compared to other competitors’ currencies, such as India’s rupee and China’s yuan.
The association predicts this year’s rice experts to be around 10 million tonnes, less than the 11 million tonnes forecast in 2018. According to the BOT, the baht stood at 32.205 against the US dollar yesterday, the year’s second day of trading, up from 32.417 to the greenback on December 28 – the last trading day of 2018.
The baht rose to 32.032 per dollar in the spot market at about 2pm yesterday, as the yen rose sharply to 107.08 per dollar, said Kobsidthi Silpachai, head of capital markets research at Kasikornbank.
“It was risk off-mode, selling the dollar against safe havens and low yielding currencies like the Japanese yen and Thai baht,” he said. Since yesterday was a Japanese holiday some people suspected that algorithms were behind the US selling, he noted.
One factor causing the dollar to weaken is the partial US government shutdown resulting from a political gridlock in Washington, where President Donald Trump and the Democrats, who hold a majority in the lower house, failed to strike a deal, he said. The baht was also mostly flat in trading against the US dollar in January and December last year, but was highly volatile in between. It may be subject to volatile swings in 2019 compared to the Indian rupee, which was down about 9 per cent against the dollar last year, he said.
The Indian rupee’s weakness is likely to continue this year as the subcontinent is expected to run a current account deficit at 2.6 per cent of gross domestic product, compared with Thailand’s estimated current account surplus of 6.9 per cent, he said. Currencies of emerging markets facing current account deficits will also weaken against the dollar, he said.
However, he added, that since the US dollar/baht trade was very thin over the past few days, it did not truly reflect demand and supply in the market. Currency trading next week should provide a clearer picture as buyers and sellers enter the market again.
Also, the upcoming general election could produce split houses, with politicians controlling the Lower House, while the Senate will be controlled by the military. Hence, the next government may find it difficult to function, much like the situation in Washington, and that could weaken the baht, Kobsidthi added.
Tada Phutthitada, president of the Thai Bond Market Association, said capital inflow into the bond market is low. Over the past few weeks daily inflow has been less than Bt1 billion compared to between Bt2 billion and Bt3 billion daily previously, he said.
This suggests that the baht has not been strengthened by foreign capital inflows, but rather by a weakening dollar, he said.
Meanwhile, investors are unsure whether the US Federal Reserve will continue increasing key policy rates as expected earlier. That, combined with Trump’s threat to fire the Federal Reserve chairman, could weaken the dollar further, Tada said.
Separately, Amornthep Chawla, head of the research office at CIMB Bank, said exporters will face two key challenges – the impact of the US-China trade war and a stronger baht. There is a high possibility that exports could turn negative in the first quarter of 2019, partly due to a slowdown in global economy and also last year’s high base of exports, he warned.