The Thai baht is anticipated to strengthen further to reach 36.1 against the US dollar in the short term, following recent gains that led to a one-month high on Monday. Weaker than expected US economic indicators have prompted market speculation that the Federal Reserve may begin reducing US interest rates in September.
The Thai currency stood out among Asian currencies with a trading rate of 36.4 baht to the dollar on Monday morning, marking a 0.4% increase from Friday’s closing rate of 36.58. This surge was fueled by investors selling off dollars after reports of cooling US inflation from personal consumption expenditure (PCE) and core PCE data.
As the benchmark 10-year US Treasury yields declined alongside concerning job figures indicating a weakening US labor market, the likelihood of a Fed rate cut became stronger. With the US unemployment rate hitting 4.1%, the highest level in two and a half years, the path seems clearer for such a move, as explained by Kanjana Chockpisansin, head of research for the banking and financial sector at Kasikorn Research Center, in an interview with the Bangkok Post.
Market expectations have pushed the probability of a Federal Open Market Committee September rate cut to 77%, though certainty remains below 100%, she noted.
In the year-to-date performance, the baht has experienced a slight depreciation of over 6%. Key factors to watch include Fed Chair Jerome Powell’s Congress testimony scheduled for July 9-10, June’s US inflation projections, and the outcome of France’s election.
Kanjana suggested that if the baht surpasses the 36.4 mark against the dollar, it could potentially reach 36.1 in the near future. However, despite this, their forecast for the third-quarter value of the baht remains at 36-37 to the greenback.
Poon Panitpiboon, market strategist at Krungthai Bank (KTB), highlighted that domestic political factors continue to influence fund outflows, limiting the baht’s upward movement. Additionally, global gold prices and movements in China’s yuan play a role in influencing the baht, as indicated by KTB.
KTB projects the Thai currency to trade within the range of 36.4-36.55 against the dollar, while SCB Financial Markets estimates a range of 36.35-36.55.
