The baht experienced a drop below 36 against the US dollar on Wednesday and is anticipated to further depreciate due to higher than expected US inflation. This has led the market to speculate that the Federal Reserve may postpone its initial interest rate cut beyond the previously anticipated timeline, potentially extending beyond May.
The Thai currency reached a three-month low of 36.13 baht against the greenback early on Wednesday before climbing to 36.07-09 baht, in comparison to Tuesday’s closing rate of 35.7 baht, according to Kasikorn Research Center.
Kanjana Chockpisansin, head of research in the banking and financial sector at the institute, mentioned that the baht’s movement aligns with other Asian currencies, coinciding with the drop in global gold prices below US$2,000 per ounce.
Following the US Consumer Price Index (CPI) rise of 3.1% year-on-year in January, surpassing the market’s expectation of 2.9%, along with a core CPI at 3.9% against the forecasted 3.7%, the dollar and US bond yields experienced a significant surge. These readings could lead the Fed to maintain rates for a longer duration, reducing the probability of an earlier anticipated rate cut in May to only 35%, according to Ms. Kanjana’s assessment.
Kobsidthi Silpachai, head of capital markets research at Kasikornbank, mentioned that the US inflation surge was mainly driven by increasing house prices. This has caused the market to revise their forecast, reducing the expected rate cuts from seven to four times this year. Consequently, the prolonged gap between Thai and US interest rates may continue to push the baht lower against the dollar.
Over the past three months, the baht has exhibited the third-highest volatility against the US dollar among regional currencies at 9.56%, following the Japanese yen and the South Korean won.
Poon Panitchpibul, money market strategist at Krungthai Global Markets, foresees the first Fed rate cut of the year to take place in June, potentially strengthening the dollar and weakening the baht. Krungthai’s forecast suggests a fluctuation range of 35.66-36.10 baht against the dollar in the near term.
Kavee Chukitkasem, head of research and content at Pi Securities, highlighted that persistently high US inflation is putting pressure on the prices of various assets like gold, Bitcoin, stocks, and debt instruments. However, the real impact will be clearer after the Fed’s meeting, either in May or June, to determine if the central bank will cut rates.
Due to these factors, it is projected that the stock market may not see a significant rebound over the next few months, with Pi Securities anticipating the Thai index to move within a range of 1,350 to 1,400 points by mid-2024.
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