FxWirePro: Thai baht outperforms among EM Asia - Roll over USD/THB NDFs on neutral valuations

Thai currency has been continually outperforming among EM Asia FX space, consolidation by 8% this year and outperformance should continue over the coming months on large current account balance, foreign inflows, stable growth, and neutral valuations. We roll our short positions in USDTHB position via 3m NDF – initiated in early earlier this month on structural current account improvement, neutral valuations.

The upward march in the merchandise trade and services balance has resulted in Thailand having the second-largest surplus in EM relative to GDP (10.6% of the GDP over last four quarters) and the fourth-highest in dollar terms. Despite the THB being the top performing currency in the region year-to-date, the REER is only 3% higher than its 10-year average.

FX reserves have increased by $23bn since the start of the year, and more steeply since July (by $10bn) on possible dollar buying from BoT. However, a less aggressive approach can be adopted by the BoT if EM currencies continue to strengthen (EM Special – Still believers in the EM FX carry trade). The BoT recently talked about measures to monitor large transitions but any policy shifts would be directed at slowing, rather than reversing, the direction of the THB.

Thus, stay short in USDTHB via 3m forwards. The position has been rolled over with the following parameters: Sell USDTHB via 3m DF at 33.130 (spot reference) with the target at 32.10 (3.10%) and stop at 33.45 (-1%). The trade horizon is 2-3 months and it has a negative carry of 6bp/month.