THB Thermometer. April A member of MUFG, a global financial group

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1 THB Thermometer April 2018 A member of MUFG, a global financial group

2 Foreign Exchange Market Update Recap : March The dollar softened against several other major currencies as the Fed delivered the sixth rate increase of the cycle and maintained the gradual approach to policy tightening, offering no material surprises. Besides, more pronounced trade protectionist gestures from Washington and subsequent perception of a weak dollar policy kept the greenback on weak footing. Performance Moderate Appreciation The euro strengthened on the bearish dollar sentiment while the European Central Bank held policy unchanged. Nonetheless, recent economic readings in the Eurozone have been more mixed. Persistently low inflation and anti EU movements following the Italian election also left market participants more reluctant in pushing the EUR/USD above for now. Outlook Appreciation With the ECB on track to end QE in September but the timing of the rate hike still uncertain, on balance the policy outlook remains supportive of the euro in the period ahead. The euro has also been acting as another currency of choice in times of elevated market volatility. Performance Limited Appreciation Fears of a potential global trade war, led by the Trump administration s imposition of import tariffs on Chinese goods boosted safe haven yen demand, briefly sending the yen to near 16 month highs against the dollar during the month. Meanwhile, the Bank of Japan kept ultra accommodative policy steady as expected. Outlook Gradual Appreciation We maintain our moderate yen appreciation view given the trading environment is poised to become more volatile and vulnerable to uncertainties about the U.S. economic policy as well as a downward correction in risk assets. EUR/USD Euro gained 1.0% in Mar USD/JPY Yen firmed by 0.3% in Mar Reuters 2

3 Foreign Exchange Market Update Recap : March Modest Baht Appreciation The baht firmed against the dollar thanks to Thailand s still hefty current account surplus although the pace of baht gains became more measured due to the ups and downs in risk appetite linked to developments on global trade tension. The Monetary Policy Committee voted 6 1 to keep rates at 1.50% on Mar 28, marking the first split vote in over three years, signaling the path toward policy normalization. Overall the baht consolidated in a range after briefly hitting the strongest level since October 2013 but lacked a forceful follow through. USD6.2 billion current account surplus in February THB11.0 billion net foreign selling of SET listed shares in March, quarterly offshore sales topped THB58 billion; biggest in 10 quarters THB41.8 billion* net buying of Thai government bonds in March * Based on outright trading value. The accumulated net buying value may double count the trading value of rollovers. USD/THB Historical Performance THB vs USD THB vs JPY 1 month 0.6% 0.3% 3 months 4.3% 1.5% 12 months 9.3% 4.9% As of March 30, 2018, indicates THB depreciation Reuters Outlook: Near Term Consolidation Our near term sideways view remains unchanged in light of a protracted correction after the baht s outsized appreciation seen last year. Looking ahead, we anticipate the local currency to later resume its uptrend particularly once the MPC provides more clarity on monetary tightening prospects. 3

4 Foreign Exchange Market Update Monthly Performance 3.0% 2.0% 1.0% 0.0% 1.0% KRW MYR SGD CNY TWD THB INR PHP IDR VND vs USD 2.2% 1.4% 1.0% 0.9% 0.9% 0.6% 0.1% 0.1% 0.1% 0.2% Appreciation Depreciation 15.0% Yearly Performance 10.0% 5.0% 0.0% 5.0% MYR THB CNY SGD KRW TWD VND INR IDR PHP vs USD 12.7% 9.3% 8.9% 6.2% 5.1% 4.1% 0.2% 0.4% 3.3% 3.9% Appreciation Depreciation Reuters, data as of March 30, 2018, indicates currency depreciation against USD 4

5 Thailand: External Accounts Current Account & USD/THB Record high Structural surplus adds to THB appreciation pressure Exports Imports Trade Balance Current Account Reserves* % y o y % y o y USD bn USD bn USD bn Feb Jan Dec Bank of Thailand, * including net forward position, last data points: February

6 Thailand: Foreign Portfolio Flows Net Foreign Position & USD/THB THB mn M2018 Stocks (154,350) 79,069 (25,752) (58,108) Bonds (24,670) 331, , ,878 Bonds (TTM>1) (33,858) 41, ,976 54,229 Share of shortterm bonds 87% 53% 55% Thai Bond Market Association (based on outright trading value; the accumulated net buying value may double count the trading value of rollovers), Stock Exchange of Thailand, Bank of Thailand, last data points: March

7 Thailand: Domestic Economy Manufacturing Production (% y o y) Consumer Confidence Floods 4.7% Coup d'état Private Investment (% y o y) 12 Private Consumption (% y o y) % 0 2.5% 4 8 Bank of Thailand, UTCC, last data points: February

8 Thailand: Inflation % headline inflation target year on year change Headline CPI CPI Excluding Raw Food & Energy Mar % 0.63% Feb % 0.63% Jan % 0.58% Ministry of Commerce, Bank of Thailand, last data points: March

9 Interest Rate Market Update FOMC Matched Street Consensus The Federal Reserve at the end of the Mar meeting, as expected, voted unanimously to raise the Fed funds rate by 25 bps to %. The FOMC slightly upgraded the longer run FFR projection to 2.875%, despite maintaining the plan to deliver two more hikes this year. However, inflation assessment was less hawkish than anticipated, with Chair Powell noting there was no sign of inflation overshoot. The upward pressure on U.S. bond yields faded quickly after players digested details from the policy statement. US Federal Funds and Thai Policy Rates (%) The U.S. Treasury yield curve re flattened after the 10 year yield failed to reach the 3.0% barrier while persistent concerns over subdued inflation and uncertainties about the Trump administration s economic policies kept a lid on long dated yields. Meanwhile, USD LIBOR rates spiked to the highest level since 2008, yet the widening LIBOR OIS spread raised questions as to whether financial conditions have perhaps become a bit too tight. On balance, we remain skeptical over further strength of the U.S. economic growth at the current stage of the recovery cycle and expect the Fed to raise rates twice more this year. The relatively mild pass through inflation from the jobs market should keep the UST curve flattening bias intact. end of period Sep 17 Dec 17 Feb 18 Mar 18 USD6MLIBOR THBFIX6M Diff Reuters 9

10 Interest Rate Market Update MPC Policy in (Gradual) Transition The Monetary Policy Committee on Mar 28 voted 6 1 to keep the policy interest rate at 1.50%. The first divided decision since April 2015 could be intended to remind the markets that a rate hiking cycle was not too far away. The MPC assessed that the Thai economy would grow more robustly than previously judged while still anticipating consumer inflation to get back into the 1 4%targetrangebyQ2/18.At the same time, the Committee saw pockets of risks that might pose vulnerabilities to financial stability in the future. While six members voted to maintain policy, the lone dissenter who voted in favor of a 25 bps rate increase to 1.75% viewed that prolonged monetary accommodation might induce households and businesses to underestimate potential changes in financial conditions. Thai Govt Yield Curve The Thai government yield curve during March steepened with yields falling further at the front end amid still ample excess liquidity and long dated yields inching up on supply profile. The seemingly more hawkish than expected language from the MPC did, however, help limit the decline in short term yields toward the end of the month. Assuming inflationary pressure has bottomed out and the economy manages to keep its positive growth momentum, we foresee more concrete signals from the policymakers toward monetary normalization. While we maintain our view the MPC would raise rates by 25 bps in H2/18, external risks ignited by uncertainties associated with the U.S. trade policies should be closely monitored. Reuters 10

11 Forecast Factors in Focus A Global Trade War? Markets will continue to fluctuate with headlines on Trump s trade policy threats and actions as well as retaliatory measures from the U.S. trading partners. While the impact has so far been limited to global stocks and the spillover to the FX market has been modest, we remain cautious over further developments. Although not our main scenario, emerging market currencies including the Thai baht could be exposed to downside risks in case the global trade friction escalates into a full blown trade war. Fed s Pending Issues. As the selection of remaining vacant seats for Federal Reserve Board of Governors, including Vice Fed Chair, is still ongoing, how a potential line up could shape the Fed s monetary policy will gain traction. ECB Meeting: Apr 26. Players will look for further clues on the normalization plan, economic and inflation assessments as well as the impact of the euro s strength on price pressures. BoJ Meeting: Apr We expect the BoJ to keep monetary policy unchanged. However, how the entire team with two new members joining the committee would express policy views might catch some attention. World Politics: The U.S. government s policy steps in the Korean peninsula and Brexit negotiation progress between Britain and the EU could add to volatility in price actions. FX USD/THB USD/JPY JPY/THB Mar 30, Q2/18F Q3/18F Q4/18F Q1/19F JPY/THB is per 100 yen, * USD/THB based on Bangkok closing rate, USD/JPY on New York close Policy Interest Rates Current end Q1/19F USD Fed Funds % 2.43% EUR Refinance 0.00% JPY O/N Call 0.10% THB 1 day R/P 1.50% 1.75% As of April 3,

12 Economic Projection 2017A 2018F 2019F Real GDP growth 3.9% 4.1% 4.1% Private Consumption growth 3.2% 3.3% 3.3% Private Investment growth 1.7% 3.0% 3.6% Public Consumption growth 0.5% 2.9% 3.3% Public Investment growth 1.2% 9.5% 3.4% Export Value growth 9.7% 7.0% 3.6% Import Value growth 14.4% 11.2% 5.4% Current Account (USD bln) Headline CPI Inflation 0.7% 1.0% 1.2% Bank of Thailand, as of March 28,

13 Contact Persons Global Markets Research and Analysis Section Roong Sanguanruang Pote Siripoonsap Bank of Ayudhya Public Company Limited (A member of MUFG, a global financial group) <Head Office> 1222 Rama Ⅲ Road, Bang Phongphang Yan Nawa, Bangkok Thailand <Global Markets Group> 550 Ploenchit Road, Lumphini, Pathumwan, Bangkok Thailand This report has been prepared by The Bank of Ayudhya Public Company Limited, (A member of MUFG, a global financial group), (the Bank ), for general distribution. It is only available for distribution under such circumstances as may be permitted by applicable law and is not intended for use by any person in any jurisdiction which restricts the distribution of this report. The Bank and/or any person connected with it may make use of or may act upon the information contained in this report prior to the publication of this report to its customers. Neither the information nor the opinion expressed herein constitute or are to be construed as an offer or solicitation to buy or sell deposits, securities, futures, options or any other financial products. This report has been prepared solely for informational purpose and does not attempt to address the specific needs, financial situation or investment objectives of any specific recipient. This report is based on information from sources deemed to be reliable but is not guaranteed to be accurate and should not be regarded as a substitute for the exercise of the recipient s own judgment. This report is based upon the analysts own views, therefore does not reflect the Bank s official views. Historical performance does not guarantee future performance. The Bank and/or its directors, officers, and employees, from time to time, may have interest and/or underwriting commitment in the relevant securities mentioned herein or related instruments and/or may have a position or holding in such securities or related instruments as a result of engaging in such transactions. Furthermore, the Bank may have or have had a relationship with or may provide or have provided corporate finance or other services to any company mentioned herein. All views herein (including any statements and forecasts) are subject to change without notice and none of the Bank, its head office, branches, subsidiaries and affiliates is under any obligation to update this report. The information contained herein has been obtained from sources the Bank believed to be reliable but the Bank does not make any representation or warranty nor accept any responsibility or liability as to its accuracy, timeliness, suitability, completeness or correctness. The Bank, its head office, branches, subsidiaries and affiliates and the information providers accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. The Bank retains copyright to this report and no part of this report may be reproduced or re distributed without the written permission of the Bank. The Bank expressly prohibits the distribution or re distribution of this report to Private Customers, via the Internet or otherwise and the Bank, its head office, branches, subsidiaries or affiliates accepts no liability whatsoever to any third parties resulting from such distribution or re distribution. 13