The baht fell to less than 35 against the US dollar on Monday and recorded its lowest level for two months, after being the most volatile currency traded in the region this year.
The baht opened at 34.93 per dollar on Monday. During day-trade, it weakened to 35.16 against the greenback before closing at 35.10.
Roong Sanguanruang, head of global markets and research at the Bank of Ayudhya (Krungsri), said that over the past two months the baht had been the most volatile currency in the region.
"The baht appreciated by around 5% compared with the dollar last month, while it weakened by around 6% per dollar this month. The firmer dollar is a key factor, affecting the baht's swing significantly," she said.
After the US announced improving economic data and signs of a steadier rate of inflation in January, investors have been adjusting their view of the US Federal Reserve's policy rate direction. Investors believe the Fed will continue to increase its policy rates at its next three upcoming meetings and raise the terminal rate to 5.4% by the middle of this year, from the previous forecast of 4.8%.
Global foreign funds have been returning to the US market and flying out of the Thai equity and bond markets. As a result, the US dollar has been strengthening compared with other currencies, including the baht. However, the Fed Fund rate and the market reaction still need to be monitored, according to Ms Roong.
Given higher uncertainty in the worldwide money market, the baht is expected to stay volatile. Krungsri expects the baht to record a new low of 35.50 per dollar by the end of March. Meanwhile, the Thai currency is expected to move in the range of 32.50-35.50 baht compared with the dollar for the first quarter of this year, depending mainly on the Fed Fund rate movement, Ms Roong said.
Given the higher volatility of the baht against the greenback, it would be of more concern for local importers and exporters who do not have protection from foreign exchange rates, mainly small to medium-sized enterprises (SMEs), she said.
Separately, Poon Panichpibool, market strategist at Krungthai Bank (KTB), said the bank expects the baht to continue to fall to 35.20 baht against the dollar this week, mainly due to the Fed Fund rate factor. Moreover, the bank believes the local currency will further depreciate against the dollar in the second quarter of this year because of the Fed Fund rate trend and the Thai political factor amid the upcoming general election.
"We forecast the baht to fall to test 36 baht per dollar in the second quarter because of higher uncertainty, both of external and internal factors," he said.
However, the Fed is forecast to stop the policy rate hikes in the second half of this year, and then the baht is expected to change direction to a firmer trend against the greenback. Therefore, KTB will keep its existing assessment of the baht at 32 per dollar for the end of 2023, he said.
YLG Bullion and Futures explained that the baht slipped below 35 to the dollar as the dollar has appreciated, particularly after US personal consumption expenditure (PCE) rose by 0.6% in January, beating market estimates.
Analysts said the rising PCE has prompted growing concerns that the Fed may lift the interest rate more than analysts earlier anticipated and hold rates high for longer.
Asian currencies also lost ground on Monday as the US rate outlook dampened the mood. As the baht fell by 0.5%, Indonesia's rupiah was down by 0.4% to the dollar, hitting its weakest level since mid-January. The Philippine peso shed the most, weakening 1.3% against the dollar to hit its lowest level since January 6. The Malaysian ringgit lost as much as 1% to touch its lowest level since November 30.
STABILISING EFFORTS
Key business leaders are calling on the government to use better measures to help Thai businesses, especially those with limited budgets, to avoid the severe fluctuations of foreign exchange rates.
"One measure is the use of foreign currency deposits [FCD]. It can help small and medium-sized enterprises," said Montri Mahaplerkpong, vice-chairman of the Federation of Thai Industries (FTI).
At present, only large companies can use FCD accounts as a way to reduce risks in foreign exchange rates. To allow SMEs to do so, the Bank of Thailand could let them group together and jointly use their money through the FDC mechanism to deal with currency fluctuations.
The FTI said earlier that the baht's value should stand at 34 per US dollar, but its value fluctuated greatly.
Tanit Sorat, vice-chairman of the Employers' Confederation of Thai Trade and Industry, agreed that the state and private sectors needed to be equipped with better tools to solve the fluctuation problems, which will affect both importers and exporters.
He believes the latest baht depreciation resulted from currency speculation.