Those who need to convert foreign currency into Thai baht have had a mixed week. The baht has held steady against the U.S. dollar at just above the 31.00 level, which is a vast improvement over the levels under 29.00 that were seen at the beginning of June. The Australian dollar rate is also basically unchanged on the week with the AUD/THB trading right around the 29.00 level.
Our friends from the U.K. and Europe haven’t fared as well however. The Euro has been falling relative to the baht since last Friday and has gone from roughly 41.25 at the beginning of trading last Friday to as low as 40.40, though it has recovered somewhat today and is now sitting at 40.65. The Pound has also seen a fairly significant decline since last Friday going from 48.40 to its current level of 47.50.
What can we expect for the Thai Baht going forward?
I think this week’s action is fairly indicative of the trend moving forward. The Euro may improve somewhat, but until the economy in Europe picks up, the Euro will stagnate. The Pound has been one of the weakest currency’s in the world in 2013 and based on recent announcements for continued austerity and spending cuts in the U.K. that isn’t likely to change.
The Australian dollar is at risk from the continued weakening of the Chinese economy and may slide slowly until Chinese growth picks up once more.
The USD has been rallying throughout 2013 and as the economy there continues to improve, and more importantly once the U.S. Federal Reserve decides to actually begin tapering their bond purchase program rather than just talking about the possibility, the U.S. dollar should continue to strengthen relative to currencies around the world, including the Thai baht.
Of course, baht rates are also dependent on internal economic factors within Thailand. Those factors actually look as if they support a weaker baht in the medium to longer term. Yesterday the Thai Finance Ministry cut their estimated growth rates for 2013 from 4.8% to 4.5%. The downgrade was based on slowing consumer spending in Thailand and a weakening of the growth prospects of China, which is one of Thailand’s main trade partners.
The government is continuing with its 350 billion Thailand baht water-management project and 2.2 trillion baht infrastructure development projects in an effort to spur growth, but those are unlikely to have an impact on GDP this year or next. And long term I believe they will drive up the debt to GDP ratio to an extent that they will be a net negative for the strength of the Thai baht.
How has the baht strength affected you? And where do you see the future of the baht? Continued strength or a correction after a decade of appreciation?