The baht has depreciated this year and ranks as one of the worst-performing regional currencies of 2023.
The currency weakened to 37.14 to the US dollar on Tuesday, the lowest since November 2022.
The recent plunge for gold prices, which lost about 5% in value or $7.45 per ounce in one week, stimulated demand for dollars to buy the metal, resulting in further depreciation of the Thai currency.
The baht has lost roughly 6.8% of its value so far this year from 34.61 against the greenback at the end of last year. Compared with its regional peers, the Thai currency is the third-worst performer this year, after the yen and Korean won, which have weakened by 12% and 7.7%, respectively.
The Malaysian ringgit has depreciated in line with the baht, falling roughly 6.8% year-to-date.
"But if we look at depreciation since August, when the new government took office, the decline has been faster than other currencies in the region," said Kanjana Chockpisansin, head of research at Kasikorn Research Center (K-Research).
On Tuesday the think tank downgraded its outlook for the Thai exchange rate to 37.55 baht to the dollar, slipping from 36.60. The centre made the shift after the baht fell past 37 to the greenback on Tuesday morning, she said.
The Bank of Thailand said it is monitoring baht movement, which is a result of external factors and is in line with regional peers.
The central bank stands ready to manage the currency if there are irregular movements, it said in a statement, adding investors are awaiting clarity on the fiscal policies of the new government.
"The dollar is strengthening based on the possibility the Federal Reserve will maintain interest rates longer than expected," said central bank senior director Sakkapop Panyanukul.
He said other factors include pressure from falling gold prices and rising oil prices.
Q: WHAT FACTORS CONTRIBUTED TO THE BAHT DEPRECIATION?
According to K-Research, major factors causing the baht to depreciate include a disappointing second-quarter Thai GDP growth rate, the Fed's interest rate hikes, the slowing Chinese economy, depreciation of the yen, and high oil prices.
Thailand's export decline, which has resulted in a growing current account deficit, as well as concerns over a widening fiscal position based on higher spending by the new government to finance economic stimulus, have also contributed to depreciation of the Thai currency, said the think tank.
A recent hawkish statement from Fed officials about interest rates being higher for longer pushed the dollar to appreciate and caused US bond yields to rise.
US economic data was stronger than expected, convincing the market the Fed could possibly hike rates at its meetings in either November or December.
The Fed has lifted interest rates 11 times over the past 18 months to 5.25-5.5%, registering a 22-year high, as part of efforts to rein in stubborn inflation. The US consumer price index was 3.7% in August, well above the Fed's target of 2%.
Oil prices, which are greater than $90 per barrel, have stoked inflation and demand for dollars, weakening the baht. Thailand, as a net oil importer, could see the current account worsen if oil prices remain high, said K-Research.
Continued capital outflows from the Stock Exchange of Thailand (SET), which is among the world's worst-performing bourses globally this year, as well as the Thai bond market, partly to buy US bonds, have also fuelled the baht depreciation, according to the think tank.
As of Oct 2, foreigners were net sellers of 158 billion baht worth of Thai stocks this year, while net selling in the bond market totalled 146 billion baht, said K-Research.
Asia Plus Securities (ASPS) said the baht has weakened this year because of accumulated foreign net selling worth 300 billion baht as of Tuesday, of which 160 billion is in stocks and 140 billion in bonds.
The US-Thailand interest rate gap has widened, with the US at 5.5% while Thailand is now at 2.50%.
Thai exports have declined this year because of the global economic slowdown, resulting in a trade deficit in August, said the brokerage.
Q: WHAT WOULD MAKE THE BAHT STRENGTHEN?
Prime Minister Srettha Thavisin, who is also the finance minister, has ruled out the need for government intervention on the baht, while the central is monitoring currency movements.
The depreciation benefits the export and tourism sectors, which normally contribute 50% and 20% of GDP respectively, said Mr Srettha.
A weak baht may negatively affect the price of imported oil and other related costs, he said. As Thailand is heavily reliant on imported energy, the country cannot do much in the short term to avoid the impact of high prices, said Mr Srettha.
ASPS predicts the local currency to weaken less and strengthen more, in a range of 35-35.5 baht to the dollar.
Economic stimulus measures should boost consumption and investment, such as the 10,000-baht digital wallet handout, three-year debt moratorium for farmers, and infrastructure investment, said the brokerage.
Tourism should perform in the fourth quarter because it is the high season, spurring demand for the baht, said ASPS.
Economic figures are expected to improve in the fourth quarter, with the trade deficit decreasing and services balance improving, resulting in a current account surplus and strengthening the baht, as happened in September 2022, said the brokerage.
From 2017-2022, the baht tended to strengthen in the fourth quarter by 3.4% on average, according to ASPS.
"The currency is expected to stop depreciating and start strengthening in the fourth quarter, swinging around 37.00-37.50 baht to the dollar in the short term," said the brokerage.
Ms Kanjana said K-Research anticipates the baht to trade at the current level in the short term.
"Once the Fed stops hiking rates, possibly by the end of this year, the baht should strengthen, possibly by year-end or early next year," she said.