The baht could strengthen to 33 to the US dollar in the near term as the market is convinced the US Federal Reserve will start cutting interest rates by as early as March, bringing back fund inflows to the Thai currency.
The baht traded at 34.26-34.28 to the greenback on Wednesday, weakening slightly from Tuesday's close of 34.14. The depreciation was in line with other regional currencies as the US bond yield rose and there was higher demand for the dollar.
Kanjana Chockpisansin, head of research at Kasikorn Research Center (K-Research), said the Thai currency should fluctuate in a wide range this year based on Fed rate cuts, possibly appreciating to 33 to the greenback in the near term.
"The market believes the Fed will be quick to cut rates, doing it aggressively this year," Ms Kanjana told the Bangkok Post.
The market expects the US central bank to cut rates by as much as 1.5 percentage points in 2024, down from 5.25%-5.5% to around 4% by year-end, she said.
However, K-Research anticipates a more cautious tone for the Fed, cutting the benchmark rate by only 0.75 percentage points this year.
"The Fed worked very hard to curb US inflation by raising and maintaining rates at a high level. We don't think they will rush to cut the rate as the economy remains sound, while inflation remains persistently high," said Ms Kanjana.
The Thai currency will move according to the weakening dollar and the Fed's rate cuts, finishing at about 34 baht to the greenback by the end of the year, she said.
Therdsak Thaveeteeratham, executive vice-president of Asia Plus Securities, agreed that the baht could appreciate to 33 to the dollar, driven mainly by the expected US interest rate cuts starting in March.
The baht is strengthening, which is driving fund inflows, he said. Foreign investors were net buyers in the Stock Exchange of Thailand by 1.25 billion baht on Tuesday.
Tourism stimulus measures should increase the number of arrivals, especially Chinese travellers, which may lead to a trade surplus and services surplus, bolstering the baht, said Mr Therdsak.
From 2015 to 2019, Thailand had a current account surplus of 3.68 billion baht, mainly from a trade and services surplus, while the baht averaged 31 to the dollar. If the tourist volume rebounds, Thailand is expected to record a trade surplus and services surplus again, which will strengthen the baht and raise fund inflows, he said.