With the majority of short positions likely already closed, Goldman Sachs believe that the current macroeconomic fundamentals do not further support the recent outperformance of Thai Baht.
Goldman Sachs highlighted the substantial rally in Asian FX markets since July, with the Malaysian Ringgit (MYR), Thai Baht (THB), and Indonesian Rupiah (IDR) showing strong performances. This surge is attributed to the unwinding of significant short positions in these currencies prior to the summer, alongside specific market factors.
Regarding the THB, aside from the covering of short positions, Goldman Sachs believes that the THB’s rally can be attributed to declining oil prices and elevated gold prices. However, the investment bank suggested that if the US dollar continues to depreciate, the South Korean Won (KRW) and Indonesian Rupiah (IDR) would outperform the currencies of Non-Japan Asia (NJA). The Malaysian Ringgit (MYR) and Thai Baht (THB) would remain mute with the FX shorts likely already covered.
The Bank of Thailand (BoT) maintained its interest rates last week while underscoring that investment levels have fallen below initial projections. The recent appointment of a new Prime Minister and the possible postponement of fiscal stimulus programs such as the digital wallet initiative could lead to increased uncertainty among investors.
Despite these factors, Goldman Sachs pointed out that there remains a considerable demand from local investors to diversify their portfolios with offshore assets. Moreover, as the BoT continues to relax its foreign exchange policies, measures to curb capital outflows are anticipated to strengthen.
