Bank of Thailand’s hawkish tilt adds new tailwind for currency

Bloomberg

The Bank of Thailand is giving the baht — the most-loved emerging-market currency this month — one more reason to keep up its outperformance.
Piggybacking on a strong current-account surplus, the baht has braved developing-market doldrums and topped returns among 24 currencies tracked by Bloomberg. It is also the sole gainer in Asia this quarter. As investors await the August 31 release of Thailand’s latest balance of payments data, a recent hawkish tilt by the central bank is adding to the currency’s allure.
There is less need now for
an extremely accommodative stance since the recovery in the economy is clearer, Governor Veerathai Santiprabhob said Aug. 20, adding that it can’t go against the global trends in interest-rate policy. The baht’s stability and benign inflation have enabled Thailand to hold interest rates at a near record-low of 1.5 percent even as countries including Indonesia, India and the Philippines have tightened.
Veerathai’s comments have already prompted Nomura Holdings Inc. to forecast a 25-basis points rate hike at the Sept. 19 meeting. Minutes of the BOT’s latest gathering showed officials discussed “conditions and appropriate timing to begin normalising monetary policy in the future.”
Technical analysis also points to potential gains for the currency, as the dollar-baht’s failure to breach a key resistance around 33.50 has seen the pair resume its downtrend.
Dollar-baht below its 50-day moving average on Monday, and may look to test support around 32.363 — its high from May 21, given the growing bearish momentum. The pair’s moving-average convergence-divergence has declined below zero, having already fallen below its signal line. A breach of the May high may see it head towards support around 32.00 in the medium term.
At 32.76 to a dollar on Friday, the currency has climbed
1.6 percent this month, after data on July 31 showed a higher-than-estimated current-account surplus of $4.08 billion for June. The baht is holding up well while investors get increasingly picky about emerging markets amid a savage sell-off spurred by higher US interest rates, trade tensions and a turmoil in Turkey.