Most Thai 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,” Thai Rice Exporters Association president Charoen Laothammatas told The Nation on Thursday. 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 last year. According to the BOT, the baht stood at 32.205 against the US dollar on Thursday, the year’s second day of trading, up from 32.417 to the greenback on December 28 – the last trading day of last year.

Weakening dollar

The baht rose to 32.032 per dollar in the spot market at about 2pm on Thursday, as the yen rose sharply to 107.08 per dollar, said Kasikornbank capital markets research head Kobsidthi Silpachai.

“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 Thursday 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 this year compared to the Indian rupee, which was down about nine 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.

Thai Bond Market Association president Tada Phutthitada said capital inflow into the bond market is low. Over the past few weeks daily inflow has been less than one billion baht ($31.28 million) compared to between two and three billion baht 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, CIMB Bank research office head Amornthep Chawla 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 this year, partly due to a slowdown in global economy and also last year’s high base of exports, he warned. THE NATION (THAILAND)/ANN

Source: https://phnompenhpost.com/business/stronger-baht-will-hurt-exporters-and-farmers