MUFG’s Lloyd Chan notes that reduced US inflation has curtailed Dollar strength and diminished expectations for further Fed rate hikes. Despite this, USD/THB has surged past 33.50, signaling potential for additional baht depreciation. Key factors include Thailand’s inherently low interest rate environment, deteriorating trade balances due to higher oil prices, and heightened geopolitical risks from Middle East conflicts, which may prompt the Bank of Thailand to sustain accommodative monetary policy. Valuation analyses further indicate the baht remains modestly overpriced.
Baht under pressure despite softer Dollar
“Though the dollar’s softer performance offers some support, USD/THB has already breached 33.50, and further baht weakness appears likely.”
“The persistent low carry rate in Thailand contrasts with rising oil costs, which are likely to harm the nation’s trade dynamics.”
“Elevated Middle East tensions have also raised growth uncertainties, potentially leading the central bank to prolong its supportive policy approach.”
“Moreover, our valuation models suggest the baht is still slightly overvalued relative to fundamentals.”