Thai Baht continues to weaken below 37.60 Baht/US$ as market awaits outcome of MPC to raise rates

The Thai Baht continued its dip as the new week starts and Kasikorn Research Center has come out to say that it expects the Thai currency to slide to as low as 37.80 Baht to the US$ during the course of this week.

Thai Baht, which on Friday broke through the 37.50 Baht to the greenback was trading at 16-year low of 37.63 this morning, the last time it was trading at this level as in early September 2006.

Kasikorn Bank came out to say that it expects that during this week Thai Baht would trade around 37.00-37.80 Baht per dollar.

thai baht continues to weaken below 37.60 baht/us$ as market awaits outcome of mpc to raise rates

Kasikorn Research Center said that the Thai Baht’s movements during September 19-23, 2022 showed that the Thai Baht hit its lowest level in almost 16 years since September 2006 and it continued to depreciate consistently with Yuan and other Asian currencies. This the bank said was mainly due to the stronger US$ which has been strengthening due to the sharp rise in interest rates as United States tried to battle the runaway inflation.

The Baht adjusted in a narrow range, before turning back to weaken again after the US Federal Reserve (Fed) meeting. Which continued to signal an acceleration of interest rate hikes for the rest of the year. Continuing from the meeting in this round on September 20-21, that raised interest rates 0.75% to a range of 3.00-3.25%.

And adjusted a forecast number and a view on interest policy in Dots Plots which indicated that the rates would continue to rise to as high as 4.7% by 2023.

Such issue prompted the Asian currencies to weaken against the US$ and prompted investors to shift out their funds to higher yielding investment destinations.

Thailand’s Monetary Policy Committee (MPC) is set to meet on Wednesday September 28th, and it is now guaranteed that the MPC will raise rates by at least 25 basis points (0.25%) although with the aggressive rise of global rates, the MPC may be under pressure to raise rates by as much as 50 basis points.

The MPC in August meeting raised the rates for the 1st time in more than 3-years as it tried to battle inflation that has been running at 14-year high.

Regional Fall

The Baht is not alone in its depreciation, most countries around the region have seen their currency depreciate, with the Japanese central bank coming out to intervene for the 1st time since 1998 to shore up the Japanese Yen.

However, the Baht continued to weaken at the end of last week amid concerns over the global economic outlook. While the dollar has strong support from a rise in US bond yield following the Fed’s tightening outlook for monetary policy.

On Friday, September 23, 2022, the Baht closed at 37.55 Baht per dollar. After touching the weakest level in almost 16 years at 37.57 Baht per dollar. Compared to 37.07 Baht per dollar on the previous Friday (September 16).

This comes despite the insistence by caretaker Prime Minister Prawit Wongsuwon that the Thai Baht should be trading at around 35 Baht to the US$ and also the heavy intervention by the Bank of Thailand that has reportedly used up more than US$ 19 billion to defend the Thai Baht since the start of this year.

The Bank of Thailand wants to keep the Thai Baht from depreciating too fast and also to control inflation as it may impact the fragile economic recovery that has only started to revive.

While between September 19-23, foreign investors sold net Thai stocks of 1.56 billion Baht and had a net outlaw out of the bond market for about 7.93 billion Baht.

As for the Baht’s trend during this week (September 26-30), Kasikorn Bank sees the Baht’s movement at 37.00-37.80 Baht per dollar.

Meanwhile, the Kasikorn Research Center has assessed key factors that need to be monitored, such as the result of the MPC meeting, especially on interest rates and the outlook on the Baht situation. Thailand’s August export figures, including foreign capital flows and the regional currency situation.

The key US economic data during the week were the September Consumer Confidence Index, durable goods orders. August new home sales contracts for homes that are pending sales and inflation (PCE/Core PCE Price Index). And July house price index and Q2 of 2022 GDP figures.

In addition, the market is still waiting to follow up on the results of the Reserve Bank of India meeting, monthly inflation of September and the Eurozone and Chinese economic data such as August industrial profit and the Purchasing Managers Index (PMI) for September.