Goldman Sachs See Further USD/Asia Upside, But THB Can Outperform

Goldman Sachs sees risks of further USD/Asia upside, despite positive news recently. THB is still seen as an outperformer.
"Despite a flurry of positive domestic currency news in Asia, EM Asia FX has struggled to perform versus the Dollar over the last week, with high-beta currencies like KRW underperforming the most. In particular, while the Won appreciated on the day of the announcement of a BoK $35bn swap facility with the National Pension Service (NPS), this strength was not sustained and USD/KRW is trading at its highest level YTD despite the rebound in early April trade data released. Similarly, CNY failed to make significant headway on the back of the significant upside surprise in the March export data. With a relatively choppy risk backdrop and USD direction, we think USD/Asia could see further upward pressure over the coming week.

In the midst of it all, we think THB will continue to outperform as a more defensive expression of the China reopening theme: with a services-centric recovery in China, we have shown that the Thai Baht has one the highest betas to improvements in Chinese growth expectations at the moment. And as we have noted previously, a combination of lower oil, lower freight, elevated gold and rebounding tourism should flip Thailand’s current account back into a surplus of 1% of GDP this year. The next key event to look out for will be Thailand’s general elections on May 14th. We think that as long as the election outcome is not contested, then it should have limited impact on growth and macro policies, and therefore on the Baht. Should the broader risk backdrop turn more supportive and the data continue to signal an improvement in external balances, then leadership in EM Asia FX should rotate to a pro-cyclical, equity-centric currency like KRW, especially from currently weak levels."