Thai baht flies high despite bird flu

"So far it seems that the impact of bird flu on the baht appears to be minimal, although there’s been a significant impact on the stock market," Usara Wilaipich, senior economist at Standard Chartered in Bangkok, told FX Week.

The outbreak has dominated headlines in Asia over the past few weeks.
A strain of the disease that can
infect humans has been found in countries including Thailand, Vietnam, Cambodia and China. The World Health Organisation (WHO) last week reported a total of four human deaths caused by the disease in Thailand since the crisis started.

However, regional analysts agreed that the Thai economy was strong enough to weather the impact of the virus, and keep the country’s currency strong. "The economic story [in Thailand] remains a good one," said Bhanu Baweja, FX strategist at UBS in Singapore. "Unlike quite a few other places in Asia, this is one place where export incomes have clearly trickled down into the domestic economy… the credit multiplier seems to be working and investment is looking strong, so I think you will get another year of strong growth."

"We haven’t changed anything in the medium to long term, it’s an extraordinarily strong current account position," agreed Vasan Shridharan, regional economist at HSBC in Singapore. "And we still think that as long as there’s a good amount of growth differential -- we don’t see the US raising rates quickly -- this will only allow the currency to strengthen."

And underlying economic strength in Thailand isn’t the only thing supporting the baht. "You’ve also got the envelope of potentially stronger yen against the dollar… which usually benefits other Asian currencies simply because their capital accounts get boosted," said HSBC’s Shridharan. "When the yen strengthens and the margin incentive to relocate, outsource etc, increases for the Japanese, this in turn tends to boost all these other economies in the region."