It is apparent that the Thai currency and the Thai government bond yields - especially the long-term bond yields - have begun to ostensibly “swing" in the last quarter of the year. The Thai Baht weakened to touch THB33.10 against the greenback on October 9 (when the net sales of equities and bonds by foreign investors totaled THB4.63 billion and THB3.26 billion, respectively) or down by 2.6 percent from THB32.25/USD registered early October. Meanwhile, the Thai government 10-year bond yields steadily increased to 2.88 percent, the highest level in 21 months.
Thailand is not the only country with a weaker currency and rising bond yields. Other countries are facing similar conditions because most currencies in the region (and currencies of emerging markets) are under pressure by surrounding factors that can trigger more fluctuations in the last quarter of the year. The factors include (1) the push for a stronger US dollar thanks to tightening monetary policy as seen by the Fed's hints at more policy rate hikes; (2) oil prices on the world market are likely to stay at a high level, affecting inflation and trade balance while revealing economic fragilities within many counties; and (3) other unpredictable factors such as the prolonged trade dispute between the US and China, and the US midterm elections which may impact the timing of the dollar movement.
As for the outlook of the Thai Baht, KResearch views that although Thailand's strong economic fundamentals and external stability may help curb the currency volatility, the Thai currency is likely to slide somewhat. The surrounding factors in the remainder of this year, namely, the Fed's restrictive monetary policy, high global oil prices and the ongoing trade dispute between Washington and Beijing, are not new to the market. However, when combining these factors with the widening gap of the policy rates between the US and Thailand, they may cause the Thai currency to be more “sensitive" to these issues. KBank therefore maintains an estimate for the Thai Baht as of the end of 2018 at THB33.00/USD (with movement ranging from THB32.50-THB33.50/USD).