SINGAPORE — The baht hit a seven-month high against the dollar on Wednesday, showing resilience despite potential risks from the US Federal Reserve's policy statement due later in the day.
Moves among Asian currencies were mixed, with the baht and Philippine peso edging higher, while the South Korean won and Indonesian rupiah retreated against the dollar.
The Fed is widely expected to hold interest rates steady at its policy decision due later on Wednesday.
The focus is whether the post-meeting statement and comments by Fed Chair Janet Yellen will lead to any increase in bets for the Fed to raise interest rates by mid-year, following some recent improvement in US economic data.
Analysts say Asian currencies could come under pressure against the dollar under such a scenario.
"I think the Fed will definitely start paving the way for rate hikes later in the year... In fact we expect the Fed to hike rates in June," said Khoon Goh, senior FX strategist for ANZ in Singapore.
"The Fed might also leave open the possibility of moving earlier than June as well, if conditions warrant it," he added.
The baht rose to as high as 34.99 against the dollar, its strongest level since early August 2015.
Institutional investors and speculators sold the dollar versus the baht, while agent banks bought the dollar, traders said. Authorities can conduct currency intervention through such agent banks.
Stephen Innes, a senior trader for FX broker OANDA in Singapore, said the baht's rise may be linked to possible overseas investor demand for Thai bonds at a debt auction on Wednesday.
The baht has gained about 2.7% against the dollar in 2016 amid signs of inflows back into Thai assets. In 2015, the baht slid by about 8.7%.
Recent inflows into Thailand's markets are probably a result of overseas investors covering their previously underweight positions in Thai assets, said ANZ's Goh.
"We know that foreign investors had been underweight the Thai market for some time," he said.
Given the strong recent rally in both Thai bonds and the baht, investors who had been underweight could have seen their investment performance lagging behind their benchmarks, Goh said.