The baht is expected to continue its depreciation amidst ongoing capital outflows ahead of the US presidential election early next month, potentially trading below 34.50 baht to the dollar if Republican candidate Donald Trump emerges victorious, according to Kasikorn Research Centre (K-Research).
On Thursday morning, the Thai currency depreciated to 33.84 against the dollar, marking its lowest level in over a month and a half, down from Tuesday’s close of 33.50, as other regional currencies also weakened against the greenback.
“There are ongoing fund outflows from the Thai stock and bond markets, while the dollar is bolstered by rising US bond yields, especially as the Federal Reserve has indicated that it will gradually lower interest rates,” explained Kanjana Chockpisansin, head of research for banking and the financial sector at K-Research.
On Wednesday, yields on the benchmark 10-year US Treasury note reached their highest level since July 25, climbing to 4.26% during morning trading amid concerns that the contentious November election could further pressure bonds.
“If Trump wins, it is likely that his administration will increase spending or borrow more, which may complicate efforts to reduce inflation in the US and influence the Fed’s interest rate cuts,” she told the Bangkok Post.
“All of these factors are contributing to the dollar’s strength against Asian currencies, including the renminbi (yuan),” added Ms. Kanjana.
K-Research maintains its forecast that the Fed will reduce US rates by 0.25% during its two remaining meetings this year in November and December.
Meanwhile, the Bank of Thailand is anticipated to keep its policy rates steady during its meeting in December after a 25-basis-point reduction this month, noted Kanjana.
“We believe that the Bank of Thailand’s Monetary Policy Committee (MPC) will make its interest rate decisions based on the domestic context rather than simply mirroring the Fed’s decisions.”
Kavee Chukitkasem, head of research and content at Pi Securities, indicated that funds continue to exit the Stock Exchange of Thailand (SET) in anticipation of the US election on November 5. Institutional investors view the SET’s current price-to-earnings ratio as relatively high.
“Uncertainties surrounding the US election are leading investors to divest from riskier assets such as stocks and bonds, shifting their focus towards safer assets, particularly the dollar and gold. However, typically, stock markets tend to recover after elections, regardless of the winner,” he said.
