Thailand: Baht’s 6% rally poised to stall without China tourists

The rally in the baht may be nearing an end without new catalysts, such as a return of Chinese tourists, as technical indicators show the currency is overbought.

The baht has advanced 6% against the dollar in the past month — and was the second-best performing currency in Asia — as China loosened Covid curbs and investors bet that the Federal Reserve will slow its rate hikes. Data due this week is forecast to show that Thailand’s economy expanded 4.4% in the September quarter, the fastest growth in four years.

The currency’s gains have taken it into overbought territory from oversold just about two months ago, according to slow stochastics, a momentum indicator. In addition, resistance at its 200-day moving average and around its August high of 35.057 is poised to slow its advance. 

“The baht’s value is looking fair in my model, so unless there is scope for more USD selling and more global risk on appetite, or more sequentially good China reopening news, it may consolidate around here,” said Galvin Chia, EM FX strategist at Natwest Markets in Singapore. “The recent technical range around 35.12 and 36.40 looks sensible.”

The baht benefited from increasing expectations for the Fed to cut rates next year, but this tailwind may have run its course with several members of the US central bank still sounding hawkish. St. Louis Fed President James Bullard said on Thursday policymakers should raise interest rates to at least 5% to 5.25%, leading to a selloff in markets.

The Bank of Thailand’s stance that it will stick to a slow tightening path won’t help the baht’s cause either. If the tourism-dependent currency is to push higher it needs new stimulus. While China has indicated a relaxation of some Covid-Zero rules, officials and state media have pushed back on optimism of a rapid reopening.

Tourism made up about a fifth of Thailand’s economy before the pandemic, with Chinese tourists accounting for about 28% of the visitors. The median estimate of analysts surveyed by Bloomberg for the baht is 37 for the fourth quarter. It closed at 35.8 on Friday.

“What is missing for a larger rally in the baht are the China tourists and lower oil prices,” said Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management. “China’s outbound tourism will be opened slowly, and in small steps. But when Chinese tourists are allowed to travel, Thailand would be among the biggest beneficiaries.”