Peter Lavelle at foreign exchange broker Pure FX for American Expat Chiang Mai
Do you often transfer money between Thailand and the US? If so, the value of the baht is of special relevance to you. After all, if the baht rises against the US dollar, that makes transferring money back to the States all the cheaper, while the opposite is also true for transfers from the US to Thailand. Given that, how has the baht performed in 2012 against the greenback, and what’s likely to happen next year?
Baht strength across 2012
For those of you that transfer money out of Thailand back home, the good news is that the baht has strengthened 3.0% against the buck across the whole of 2012, according to Bloomberg. This reflects a number of factors, most importantly the extremely easy monetary policy in the States right now, pushing investment flows into Thailand, as well as Thailand’s solid pace of growth.
For those moving financial assets from the US to Thailand the news is negative by an equal amount. That would include those getting a regular income from America in social secuirty benefits, pension payments, return on investments or a salary from a US based employer.
To look at the Federal Reserve’s policy, first, it’s no secret that right now chairman Ben Bernanke is doing the monetary equivalent of hosing the financial markets with money, in an attempt to encourage borrowing Stateside, and so boost economic growth. With the cessation of Operation Twist, the Fed is now pumping $85 billion dollars into the markets each month (with a corresponding increase in debt for the American taxpayers).
Yet, a side effect of this is to encourage investors to take this money and, rather than put it in the US, look elsewhere for higher returns. Along with Brazil and Australia in particular, Thailand happens to be one of the countries benefiting from these huge ‘investment inflows’. Hence, as investment into Thailand rises, so does the baht, making it more expensive against the US dollar. Looking at this situation in total, it can be said that the American taxpayers are putting themselves in a worse financial situation by increasing their debt to subsidize the growth in other nations, which in turn will make imported products from those nations more expensive. [Expat edit note: if I had a private broker handling my personal financial affairs in this fashion, I would fire them on the spot...]
Thailand to expand 5.3% in 2012
Second, the baht has risen this year because, simply put, Thailand’s economy is doing better than that of the US. For example, Siam Commercial Bank’s most recent estimate for Thai growth in 2012 is at 5.3%, more than double that forecast for the States. That too makes Thailand an attractive investment location, raising the value of the baht.
Baht strength to continue next year?
On balance, it’s fair to say the Thai baht will continue to climb against the greenback next year. This is because, first of all, this reflects the consensus among economists. To name one source, Royal Bank of Scotland predicts the baht will rise 2.2% to just 30.0 before March. Elsewhere, Enrico Tanuwidjaja, an economist in Singapore, notes “We remain constructive on the baht.”
Equally, all those factors that made the baht strong in 2012 will remain in force next year.
Regarding foreign investment, Japan is one of the countries pumping the most money into Thailand at present, with Nissan expected to spend 11 billion baht ($358 million) on a new factory in the Kingdom. In addition, until US unemployment hits the Fed’s target of 6.5% [Expat edit note: I don't think this will happen in my lifetime...], Ben Bernanke will keep injecting billions of new money to be paid by American taxpayers of this generation and probably a couple of future ones.
Given that, if you plan to transfer money out of Thailand to the US, 2013 looks set to be a good year for you. Conversely, for those shifting assets in the other direction, it appears to be negative for the upcoming year. ___________________________________
Pure FX is an FSA regulated currency broker, specializing in providing foreign exchange and international payment solutions for both private and corporate clients. You can get more information on their services at http://www.purefx.co.uk/