The Morning Commentary: First to Worst

Foreign Exchange - Morning Commentary
First to Worst
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
In 2019, the Thai baht was Asia’s best performing currency, surging ~9% against the USD.  This strong performance, which was more than double the second best performing Asian currency, came despite a weakening economic backdrop.  However, the steady march stronger in 2019 has been replaced by a vicious sprint weaker in 2020 with the baht depreciating ~3.8% in less than a month and as much as ~1.7% over the past two days.      

Heading into 2020, a repeat of last year’s performance certainly wasn’t expected.  Steps from the central bank to ease baht buying pressure, declining exports, low agricultural prices and continued political divisions are all factors that contribute to this view.  Nevertheless, the speed at which the baht has depreciated has been nothing short of breathtaking.    
Likely worries around the coronavirus outbreak has been the key catalyst that has accelerated EM currency losses around the world.  Thailand, as with many other tourist destinations around the world, has become dependent on Chinese tourists.  For scope, Chinese travelers accounted for nearly 40% of spending by visitors to Japan.  Moreover, the U.N. World Tourism Organization estimated that nearly 168 million Chinese residents spent over $277 billion on travel in 2018.  These figures represent a 300% increase in the number of travelers and a 500% increase the amount spent versus a decade ago. 

Ultimately the impact of a slowdown in tourism is difficult to determine as it remains heavily influenced by the extent of the outbreak.  China has been more responsive and transparent in its response relative to the SARS episode but the expectation remains for things to get worse before they get better.  What the negative impact of a pullback in Chinese tourism clearly shows is the acute, and hopefully transitory, economic impact of the outbreak as well as the overall rise in China’s economic influence around the world. 
  • The Fed maintained its rate target at 1.50-1.75% as expected and announced that it would extend its repo operations at least through April.  During the press conference, yields and the USD drifted lower as markets interpreted the meeting tilting dovish.  Broadly speaking the meeting went according to market expectations. 
  • The Bank of England kept rates unchanged at Gov. Carney’s last meeting in a 7-2 vote.  The BoE did cut its growth outlook and forecasts inflation to remain below target until the end of 2021.  With the GBP up on the session as markets were priced roughly 50/50 for a cut, however expect gains to be capped as focus shifts to the difficult trade talks ahead. 
  • US GDP came in pretty much in line with market expectations as the headline number printed 2.1% QoQ growth against expectations for a 2.0% print.  Personal consumption did miss at 1.8% vs. expectations for 2.0%. 
  • Concerns over the coronavirus continues to rattle the markets.  The World Health Organization called an emergency meeting today and there is the possibility of a stronger, i.e. negative statement from the organization.  Equity markets in Taiwan and Vietnam reopened today and were down 5.7% and 3.2%, respectively. 
  • Mexico’s GDP beat expectations, contracting by only -0.3% against expectations for a -0.5% contraction.  Ultimately the economy remains weak and further central bank easing is expected. 
  • German CPI came in at 1.7% YoY, in line with expectations. 
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