The baht and the South Korean won led gains among Asian currencies in an overall positive session on Tuesday as the dollar lost ground after US Federal Reserve officials signalled their rate-tightening cycle was nearing its end.
The baht rose 0.8% in its biggest intraday jump in a week. After trading below 35 to the dollar for several days, it was quoted at around 34.80 in offshore markets on Tuesday.
“There is a possibility the (baht-dollar) pair can move further downwards in the near term but that would be subject to a stable (Thai) political outcome and favourable US CPI reading,” Maybank analysts said in a note to clients on Tuesday.
Market participants in Thailand are anxiously awaiting Thursday’s vote to choose the next prime minister. It is not clear whether Move Forward Party leader Pita Limjaroenrat has enough support in the Senate to give him the 376 votes he needs in parliament.
Even before the vote takes place, a further complication could arise if the Election Commission decides to seek a Constitutional Court ruling on a complaint that holding shares in a defunct media company could bar Mr Pita from serving as an MP. The EC was discussing the issue on Tuesday afternoon and reports suggested those discussions would continue on Wednesday.
July is shaping up as a make-or-break month for the Thai capital markets, as investors hope for a successful transition of power after almost a decade of military-backed rule.
Since the May 14 election won by Move Forward, foreign investors have been net sellers of about 83 billion baht worth of stocks and bonds.
The 10% slide in the SET Index this year is among the steepest globally in major equity benchmarks, and the most in Asia. The country’s bond market has seen a selloff of about $1.1 billion since the ballot.
If political drama is kept to a minimum, the SET Index may rally to 1,600 points in a best-case scenario, according to Nuttachart Mekmasin, an analyst at Trinity Securities. That suggests about a 7% gain from Monday’s close. On the other hand, should the leadership vote trigger street protests, the measure may drop 7.1% to 1,390.
Elsewhere in the currency markets, the South Korean won climbed more than 1% on Tuesday to its highest level since March 22. The Philippine peso climbed 0.5%, posting its best day since June 27, while the Singapore dollar, Indonesian rupiah and Indian rupee gained over 0.3%.
The dollar lost ground, trading at its lowest level since mid-May after Fed officials signalled that while additional interest-rate increases were needed to bring down inflation, the end of the central bank’s tightening cycle was getting close.
Further cues on the rate outlook will come on Wednesday when US inflation data will show if price pressures are continuing to moderate.
Meanwhile, regional equities also got a lift as hopes of further stimulus plans in China boosted risk appetite. Seoul and Taipei jumped over 1.5%, while stocks in the Philippines and Indonesia rose over 0.6%.
China’s central bank extended some policies to shore up the property sector, with existing supports failing to gain traction and the market expecting more stimulus soon.
“China’s economic recovery could pick up amid more supportive policies imposed by the Chinese government, in turn impacting EM positively in the future,” said Tina Teng, an analyst at CMC Markets.