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26 May 2023

Financial Markets

Baht’s volatility: Markets await assessment on Thai politics and US interest rate outlook (Current Issue No.3411 Full Ed.)


        The Baht has become volatile within a wider range since early 2023 amid uncertainties surrounding three external and internal factors that are affecting foreign investment and the Baht. These include: 1) The US interest rate outlook; 2) The Yuan outlook and views towards China’s economic recovery; and 3) Thai politics, specially in May 2023.   
        The Baht’s movements have been in alignment with other Asian currencies, but the Thai currency has become the second most volatile Asian currency after the Japanese Yen. Additionally, although factors that have caused Asian and other leading currencies to become more volatile are related to the US dollar, especially, the Fed’s interest rate outlook, the Baht’s increased volatility so far has been caused by specific factors in Thailand, including those related to politics, and specially its sensitivity towards global gold prices (which have increased by 12.3 percent). Close attention, therefore, must be paid to domestic political issues following the general elections.
        Looking ahead, it is expected that the Baht will move within a wider range of THB33.80-35.40/USD over the short term (projection made by KBank) due to uncertainties from several factors, particularly the US debt ceiling, the Fed’s interest rate outlook, and the political situation in Thailand. In 2H23, close attention must be paid to Thailand’s tourism outlook. If the recovery in Thai tourism can be sustained, that will be a boon for the overall Thai economy and current account balance, which are important fundamentals of the Baht.

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Financial Markets