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21 Sep 2023

Thai Economy

Fed’s stance, Yuan’s movements and specific factors in Thailand may affect the Baht’s directions during the remainder of 2023 (Business Brief No.4017 Full Ed.)


        In September 2023, the Baht weakened the fastest among other Asian currencies due to the strengthening US dollar as a result of US interest rates. It also fell in line with the Chinese Yuan, given their high correlation of more than 80 percent. Looking into the remainder of 2023, it is expected that markets will continue to monitor the Fed’s stance, the Yuan’s movements and specific factors in Thailand because these factors may pressure the Baht to soften further over the short term.
Although the Baht has weakened moderately since early 2023 in alignment with other Asian currencies, it fell relatively faster than the Yuan and other regional peers during September 2023. The Thai currency has steadily depreciated amid concern over the Thai economic recovery after Thailand’s 2Q23 GDP grew lower than expected. The Thai currency was also pressured further by the tumbling Yuan, which was hurt by negative factors, including weakening signs seen in the Chinese economy. Meanwhile, the greenback was supported by the Fed’s hawkish monetary policy stance, meaning that the US upward interest rate cycle may not end any time soon as the US inflation rate remains above the Fed’s target.
        Looking ahead, close attention must be paid to three key factors, including 1) the Fed's stance; 2) movements of the US dollar and Yuan, China’s economic performance; and 3) specific factors in Thailand, because these factors will likely affect the Baht’s direction during the remainder of 2023. Regarding the first factor, it is expected that the Fed will continue to take a tough stance on interest rates, which may in turn cause the greenback and US bond yields to rise further. For the second factor, the Chinese Yuan will continue to soften amid a bleak Chinese economic outlook, and the fact that problems in its property sector may not be addressed over the short-term. The correlation coefficient between the Baht and Yuan is at 0.81, meaning that the Yuan’s depreciation could potentially cause the Baht to weaken at some point in the future. Regarding specific factors in Thailand, they include the country’s current account balance and fiscal position, which are important fundamentals that markets are closely monitoring. The slowing economies of Thailand’s trading partners and rising global oil prices may weaken Thailand's current account balance. Meanwhile, markets also await clarity of state measures that will be implemented in the future due to their impacts on Thailand’s fiscal position, guidelines, size of debt issuance and fiscal burden within and off the budget over the next six to 12 months.  
        KResearch assesses that the above three factors will put substantial pressure on the Baht’s movements, particularly when the Fed has not ended its policy rate hike. As a result, the Baht will continue to weaken over the next 1-2 months and test near the THB36.60/USD level as projected by KBank.

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Thai Economy