The baht is slowing its wild ride as Asia’s best performing currency as the Thai economy sputters and trade tensions cool.

Easing US-China tensions a factor

The baht’s heady gains are petering out, thanks to slowing growth and a central bank that’s bent on taming the currency’s strength.

After clocking an 8% rise this year, Asia’s best performing currency is losing momentum as easing US-China trade tensions damp its appeal as a haven. Falling yields on local bonds and equity outflows are adding to the pressure.

The baht has defied the broad weakness in regional currencies as investors sought refuge in Thailand’s safe but low-yielding debt. A hefty current account surplus and a sizeable pile of foreign reserves helped reel in global funds.

But the tide has started to turn. The baht has climbed just 0.1% in December, making it the region’s worst performing currency. It has dropped 0.2% to around 30.2 per dollar since rallying to the strongest in more than six years in October.

The baht may continue this underperformance if US-China trade relations improve further as Bloomberg’s analysis of 19 emerging market currencies shows the baht is among those least responsive to the yuan’s movement.

The baht’s retreat in December came as the Bank of Thailand lowered its economic growth forecasts, citing global risks.

November trade data due Monday may confirm the slowing trend, with the nation forecast to record its first trade deficit since April as both exports and imports shrank.

The baht is expected to decline 1% to 30.5 per dollar by the end of 2020, a performance putting it behind all but three of its Asian peers, according to a Bloomberg survey of analysts.

The baht is expected to decline 1% to 30.5 per dollar by the end of 2020, a performance putting it behind all but three of its Asian peers.

If Thailand’s growth weakens, this could fuel further selling in Thai stocks and weigh on the baht. The 12-month foreign outflow from domestic equities is already above the five-year average.

Bonds may also fall out of favour as yields decline after the central bank slashed the policy rate to a record low this year. The 10-year Thai sovereign debt yield is about 1.6%, less than similar maturity US Treasuries.

Should the baht defy expectations for a drop, the central bank may step in again to check its strength. Policymakers have rolled out a slew of measures including cutting the supply of shortterm bonds and easing rules on outflows to rein in the currency’s advance.