The baht has surged to a 19-month high against the US dollar, boosted by a weakening dollar and profit-taking in gold.
On Monday, the baht opened at 32.92 per dollar, its strongest position in 19 months, compared to the closing rate of 33.60 baht on Friday.
This rise in the baht, crossing the 33-baht-per-dollar threshold, was influenced by the dollar’s decline following the US Federal Reserve’s decision to cut its policy rate by 50 basis points last week in an effort to tackle inflation.
Supporting the Fed’s rate cut are newly released US economic data aimed at ensuring a soft landing for the US economy, according to Krungthai Global Markets under Bank of Ayudhya (Krungsri).
The research firm anticipates further rate reductions from the Fed, predicting another 50 basis points cut to a range of 4.25-4.5% by the end of the year, resulting in a total decrease of 100 basis points in 2024.
Additional cuts of 100 basis points in 2025 and 50 basis points in 2026 are also expected.
Krungsri forecasts that the baht will continue to strengthen against the dollar this week, trading between 32.75 and 33.50 baht.
Despite this significant Fed rate cut, the Bank of Thailand’s Monetary Policy Committee (MPC) is projected to hold the policy rate steady at 2.5% during its upcoming meeting on October 16, as per Krungsri.
Krungthai Global Markets noted that the baht’s rise above the 33-baht mark was partially due to profit-taking in gold after global gold prices reached record highs.
Global gold prices are likely to continue their upward trend, with the baht showing a greater correlation to gold prices compared to other regional currencies against the dollar.
The firm expects the baht to maintain its strength, fluctuating between 32.60 and 33.30 to the dollar this week.
Poon Panitchpibun, a money market strategist at Krungthai Global Markets, mentioned that the baht is expected to exhibit a firmer trend, and increased volatility is anticipated by year-end alongside the weaker dollar from the Fed’s rate cuts.
On Friday, Sethaput Suthiwartnarueput, the governor of the central bank, stated that despite the Fed’s 50-basis-point cut, its impact on the Thai economy would be minimal.
However, the baht’s performance against the dollar is affected due to the weaker US currency.
The central bank will intervene in the currency market as necessary to ensure the baht aligns with other regional currencies, the governor confirmed.
Wikij Tirawannarat, a senior vice-president at Bualuang Securities, believes that currency fluctuations are typical and that the ongoing appreciation of the baht is “still manageable.”
“Fluctuations are normal for currencies. For instance, the baht has changed from 37 to the dollar earlier this year to 32 now,” he noted.
He believes the baht has moved in tandem with its regional counterparts, though it remains “slightly stronger.”
The appreciation of the baht and other Asian currencies has been fueled by the Fed’s aggressive 50-basis-point rate cut last week, alongside similar moves by central banks globally.
“Asian central banks have started to lower their policy rates, but the extent of the cuts has been smaller compared to those in Western nations. This trend has attracted funds into the region, leading to the recent appreciation of Asian currencies,” Mr. Wikij explained.
“However, the current level of the baht’s appreciation is manageable. The government’s plan to issue bonds in foreign currencies early next year, for instance, will help moderate the baht’s strength moving forward.”
Kasem Prunratanamala, head of Thai research at CGS International Securities, pointed out that the baht has strengthened nearly 4% year-to-date, outpacing its regional peers.
“Given the prospect of less aggressive rate cuts in Thailand compared to regional counterparts, we foresee that the baht will continue to gain strength against these peers, potentially allowing the Thai central bank more flexibility to reduce its rate,” he commented.
“The Fed is expected to implement rate cuts of 25-50 basis points at its next two meetings, which should lead to increased fund flows into the Thai market, driving the baht even higher, despite its year-to-date gains against most regional currencies,” Mr. Kasem added.
