FX Daily: THB cheers election results, PHP braces for rate pause

Wary of THB strength; USD/PHP to test 56.2 high
Group Research, Philip Wee16 May 2023
    Photo credit: Unsplash Photo

    THB appreciated most by 0.6% to 33.8 per USD. Among record turnout, Thai opposition parties performed well at the general elections held on 14 May. The Election Commission announced that the progressive Move Forward Party won 152 out of the 500 seats in the House of Representatives, followed by the populist Pheu Thai Party with 141 seats, the Bhumjaithai Party with 70 seats, and Palang Pracharath Party with 40 seats. The Commission has 60 days to certify results. The Stock Exchange of Thailand index declined, perhaps in recognition of lingering uncertainty. To become prime minister, MFP leader Pita Limpjaroenrat needs to form a coalition government commanding at least 376 seats across the (500-seat) House and the military-controlled (250-seat) Senate. MFP’s political reform promises are a direct challenge to the monarchy and military establishment. Investors worry that populist spending could widen the budget deficit and increase government debt. A reality check could see the end the THB’s divergence with Thai equities. 

    PHP depreciated most by 0.5% to 56.1 per USD. Bangko Sentral Pilipinas (BSP) Governor Felipe Medalla and Finance Secretary Benjamin Diokno said the hiking cycle will pause at the central meeting on 18 May. CPI inflation peaked at 8.7% YoY in January and cooled to 6.6% in April, still above its 2-4% target. Less than a month ago, National Economic and Development Authority (NEDA) Secretary Arsenio Baliscan warned that past hikes (425 bps to 6.25% since May) would slow consumption and investment. Last week, real GDP growth slowed to 6.4% YoY (1.1% QoQ sa) in 1Q23 from 7.2% YoY (2.4% QoQ) in 4Q22. Three weeks ago, the Development Budget Coordination Committee maintained its forecast for growth to average 6-7% in 2023. When the PHP last hit 56 on 20 April, Baliscan said the PHP’s lower level could improve competitiveness for producers of local import substitute and for exporters. Export growth has been negative (YoY) for four months into March, contributing to a wider trade deficit of USD14.6bn in 1Q23 vs the USD11.6 shortfall in 4Q22. USD/PHP should test the year’s high of 56.4 again and eye the top of NEDA’s 53-57 range assumed for 2023 and 2024

    Quote of the day
    “A dream doesn’t become reality through magic; it takes sweat, determination, and hard work.”
         Colin Powell

    16 May in history
    In 1966, the Chinese Communist Party issued the “May 16 Notice”, marking the start of the Cultural Revolution.


    Philip Wee

    Senior FX Strategist - G3 & Asia

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