The baht is heading for further consolidation, with 34 baht to the dollar expected by the first quarter of 2014 with the US economy picking up and the Federal Reserve's planned tapering.
If the baht hits 34 to the dollar, it would mark a four-year, three-month low, said Kasikornbank's head of capital markets Thiti Tantikulanan. The bank also forecast the local currency will weaken throughout 2014 gradually, weighed down by several uncertainties in both local and overseas markets.
The US central bank plans to start winding down its US$85 billion monthly asset purchase scheme amid a nascent economic recovery, and the pace of the reduction could become more aggressive if the world's largest economy shows stronger signs of a rebound, he said, which should strengthen the dollar.
The local currency's depreciation is still in line with its regional peers. Based on one month of data, the Indonesian rupiah dipped at the quickest pace in Asia, down 4.4% against the greenback, followed by the baht at 2.8%, Malaysian ringgit at 2.3%, and Singapore dollar, Taiwan dollar, and Philippine peso all down 1%.
"The baht has weakened faster than expected amid the lacklustre local economy. We are likely to revise our projection for the end of 2014 from 33 baht to the dollar as it does not price in the political factor," said Mr Thiti.
He said it is difficult to predict foreign capital flows in the local bond market. Outstanding foreign bond-holding in the market stands at 700 billion baht, the same level as the beginning of the year after peaking at 750 billion baht in April. Foreign bond-holding in the local market skyrocketed from 70 billion baht in 2010, driven by the Fed's easing measures.
Foreign investors in the local stock market have pulled out 170 billion baht net year-to-date.
Mr Thiti forecast 2014 would be the busiest year yet for corporate issuance, at 300-350 billion baht, driven by last month's policy rate cut to 2.25%.
Pongpen Ruengvirayudh, the Bank of Thailand deputy governor overseeing monetary stability, said foreign investors are waiting, but she does not expect they will pull out all their investments even if the country is stuck in a tailspin.
"Developments in January are important as they will indicate which direction the country will take," she said. "There have been some capital outflows recently, but the amount is not excessive."