Goldman Sachs Is Constructive On THB FX, Sees Flatter THB Bond Curve

The US Bank sees THB outperformance (USD/THB forecast at 32.0 in 12 months) and flatter THB bond curve. A further recovery in tourism inflows and a turn around in equity inflows are seen as FX positives.

• "The formation of the new government is complete; bullish THB and flatter curve. Prime Minister Srettha Thavisin and his list of cabinet ministers received royal endorsement on 2nd September. This should remove political uncertainty and pave the way for passing the FY2024 budget, as well as other proposed policy changes. The BoT have just released their Economic and Monetary conditions report for July. Domestic consumption indicators improved, tourism numbers continued to grow, goods exports were weak and inflation remains soft at 0.4% y/y. Going forward, we think tourism will continue to recover and estimate 28mn tourist arrivals in 2023 (from 40mn pre-Covid). Although Chinese tourists have been lower than the BoT's expectations year-to-date, we note that outbound flights from China are around 44% vs pre-Covid and our China economics team expects this to fully recover by the end of this year. We expect Thailand's current account to come in at surplus of 1.5% of GDP from -3.0% in 2022. Moreover, equity flows (from USD 4bn outflows YTD) should pick up, as well as FDI, now that there is more political clarity. Overall, we think THB should outperform NJA peers and maintain our 12M forecast of 32.0. On rates, the BoT has commented that the current policy rate is close to the neutral rate. Although current inflation is below 1%, the BoT also want to create policy space and have kept the door open for more further tightening, which should keep front-end rates firm. Meanwhile, we think gross government bond supply will rise by just 10% to THB 1.2trn in FY2024, as there are constraints on the size of the budget deficit. We think insurance demand is solid and should easily be able to absorb the additional bond supply. As such, we think the THB bond and swaps curves are likely to flatten further (from already flat levels)."