The race to be Southeast Asia’s best-performing currency in 2023 looks like it could be between the Thai baht and Singapore dollar.
The baht is set to be powered by an influx in Chinese tourists after Beijing rescinded most of its Covid controls over the past month, paving the way for a recovery in outbound travel. China is also Thailand’s biggest export market so the efforts by the world’s second-largest economy to bolster growth should help too.
The baht may get an early boost to start the year if December inflation numbers due on Thursday show the Consumer Price Index (CPI) is starting to rise again, as economists forecast.
The Bank of Thailand has already said it expects to keep raising interest rates through the first half of 2023, and any upside surprise in the data may see markets price in a longer tightening cycle.
The Thai currency should also benefit along with its Asian peers as the US Federal Reserve slows the pace of its own interest rate increases, pushing down the dollar, says Christopher Wong, a foreign-exchange strategist at OCBC Bank Singapore.
“The baht is likely to lead gains among Asia ex Japan for 2023 on the China reopening theme, slower Fed hikes and a moderate-to-soft US dollar profile,” Wong said. “Domestic growth will be supported by a sustained recovery in tourism.”
After hovering around 38 to the US dollar in September and October last year, the baht began to strengthen as the year drew to a close, and was trading on Tuesday around 34.35.
The other potential winner in the region is the Singapore dollar, which was the only Asian currency to appreciate against the greenback last year.
The currency has benefited from policy tightening by the Monetary Authority of Singapore (MAS), which re-centred the midpoint of its exchange rate band higher three times in 2022 to fight inflation. Further tightening canot be ruled out as core inflation remained above 5% in November despite the tighter policy settings.
“The Singapore dollar should remain resilient on the back of macro fundamentals and China reopening optimism,” OCBC’s Wong said. “The case for further MAS tightening is still plausible if inflationary pressures in Singapore continue. But it could be a case of slope steepening to anchor medium-term inflationary expectations.”
The other main regional currencies are beset with negatives which mean they are unlikely to match the two likely frontrunners.
The Indonesian rupiah is set to struggle as the central bank has already signalled its hiking cycle may be nearing its end. The Philippine peso is expected to be weighed down by the country’s trade deficit, while the Malaysian ringgit is losing its tailwind as the outlook for commodity prices worsens.
