The Thai Baht recently tested the THB37.20/USD level, its new low in almost 16 years since October 2006, amid the US Federal Reserve (Fed)’s hawkish signals of further rate hikes. However, the Baht’s movements have been in alignment with the Yuan and other regional currencies since the beginning of 2022. It has weakened by roughly 10 percent against the greenback, becoming the fifth weakest currency in Asia after the Japanese Yen, South Korean Won, Philippine Peso and New Taiwan Dollar. KResearch is of the view that the broad-based softening of all Asian currencies has been caused by a sharp appreciation of the US dollar in line with the Fed’s aggressive monetary policy.
Another important factor triggering the overall volatility in the Baht and other Asian currencies is uncertainty surrounding the timing of the Fed’s rate hikes, which have been abruptly changed between its meetings, rather than economic factors. As the Thai economy is on the path to recovery, the current situation of the Baht, therefore, is different from that seen during the ‘Tom Yum Kung” crisis in 1997 when the Thai economy was experiencing persistent problems stemming from imbalances in many aspects at the same time and requiring a long time to solve. Meanwhile, it is understood that the Bank of Thailand (BOT) is closely monitoring the Baht and using appropriate tools to maintain its stability.
Businesses are urged to monitor the Baht as it will likely move within a volatile range during the remainder of 2022, given that financial markets are still monitoring US inflation in order to finalize the interest rate outlook, particularly the end of the Fed’s interest rate hike cycle. If the Fed’s stance on its interest rate becomes clearer, it is expected that such weak-bias pressure on the Baht and other regional currencies will gradually ease.
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