Baht expected to continue its slide

Baht expected to continue its slide

Fed's comments rattle markets

Bundled 1,000-baht notes at a Kasikornbank in Bangkok. (Photo: Reuters)
Bundled 1,000-baht notes at a Kasikornbank in Bangkok. (Photo: Reuters)

Economists are warning the baht will weaken further throughout this month and next because of higher volatility in money and capital markets worldwide after the US Federal Reserve's hawkish comments about its benchmark interest rate.

Poon Panitchpibun, money market strategist at Krungthai Global Markets, a research centre of Krungthai Bank, said the baht opened on Thursday at 36.25 to the US dollar, depreciating from the previous day's close of 36.07.

During Wednesday night, the value of the baht fluctuated in a range of 35.86-36.23 per dollar, registering gradual strengthening.

Then the baht slid continuously as both the dollar and US 10-year bond yields continued to rise on the Fed's suggestion it may lift interest rates one more time this year, while signalling fewer rate cuts next year.

Many analysts assume the Fed is aiming for a soft landing for the US economy, reflected by the revised economic growth forecast for this year and next.

The US stock market is facing pressure from the Fed's signal that it will continue to raise rates an additional quarter-point if needed, with investors fearing rates could remain elevated for longer.

As a result, bond yields jumped to 4.40% after the latest Fed projections and policy statement.

The baht may depreciate more than previously estimated and could remain weaker longer following the Fed statement, which is supported by the trend of maintaining high interest rates for a prolonged period, said the Krungthai unit.

The baht could also face pressure from sales of Thai assets by foreign investors as the financial market remains in a "risk-off" state, with a rebound unlikely in the short term, said the centre.

Depreciation of the Thai currency previously almost reached the resistance level, indicating the baht could weaken to a range of 36.50-37 to the dollar, which is considered undervalued by analysts.

The baht may fluctuate sideways or even strengthen if the factors change, said Krungthai Global Markets. The centre forecasts the baht may appreciate to 35.80-36 to the dollar.

Global equity markets are still highly volatile given uncertainty about the Fed's monetary policy direction as well as concerns regarding the Chinese economic recovery, said Krungthai Global Markets.

As a result, business operators and entrepreneurs are urged to use a variety of hedging tools such as options and derivatives to increase efficiency in hedging against exchange rate risk, said the centre.

Businesses can also limit foreign exchange exposure by transacting in local currency. However, operators should compare transaction costs and prudently prepare hedging plans before making a decision, said Krungthai Global Markets.

The research centre estimates the baht will be in a range of 36.15-36.50 to the dollar at the end of this year.

Roong Sanguanruang, head of global markets and research at Bank of Ayudhya (Krungsri), said investors are concerned about Thailand's higher public debt and fiscal burden under the proposed stimulus policies of the new government after Prime Minister Srettha Thavisin mentioned a plan to issue green bonds.

Mr Srettha said during the Sustainable Development Goal Summit 2023 at the UN General Assembly in New York on Wednesday the country has issued two sets of sustainability bonds that have raised US$2.5 billion through green bonds.

For the month, the baht has depreciated by 3.2%, ranking as the largest downturn in the region, followed by the South Korean won losing 1.4%.

However, the baht has been moving in line with regional currencies amid a stronger dollar, Ms Roong said.

"Given a higher level of uncertainty, the baht is expected to depreciate further against the dollar over the next two weeks through to October. After that, the baht should be firmer compared with the greenback, supported by the high season for tourism," she said.

Krungsri revised its baht forecast for the end of this year to 35 baht to the dollar, weakening from 34 baht earlier because of higher uncertainties both externally and internally.

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