Despite recent appreciation, the baht remains under pressure to weaken and is expected to move in a range of 36-36.50 to the US dollar this month because of weak economic data, high exposure to rising freight costs, and rifts over interest rate cuts, say analysts.
After falling below 36 baht to the greenback on Wednesday, the Thai currency was quoted at 35.96-98 to the dollar yesterday morning as the dollar eased overnight, with US economic growth slightly lower than originally forecast at 3.3% in the fourth quarter of 2023, according to Kasikorn Research Center.
Far from stumbling, the US economy grew 2.5% in 2023, topping a 1.9% uptick in 2022. Consumer spending, which accounts for about 70% of US economic activity, grew at a 3% annual pace in the three months to December.
Patrick Poulier, executive vice-president and head of the financial markets function at Siam Commercial Bank, said structural problems would continue to pressure Thailand's economic recovery this year after GDP growth in the final quarter of 2023 was lower than the forecast of 1.7%, attributed to a slow rebound of tourism spending as well as sluggish public investment and consumption.
"In the short term, the baht is tending to depreciate as the dollar gains in line with treasury yields, which are expected to remain high in the near term," he said, adding the baht is expected to weaken against the dollar, moving in a range of 36-36.50 baht in March.
BofA Global Research said the baht consolidated recently as equity outflows stabilised before turning to small net inflows in February. Yet the currency continues to react negatively to any prospect of rate cuts or dovish tilts by the Bank of Thailand.
"The rift between the government and the central bank also impacts market confidence, in addition to the weak exports and growth data," Adarsh Sinha and Claudio Piron, co-heads of Asia FX and rates strategy at BofA, said in a recent research note.
The Thai currency also remains the most vulnerable in the region to higher freight costs, said the duo.
"The baht is exposed to rising freight costs, as this could add to import bills," the research noted. BofA projects the currency to trade at 36 baht to the greenback by the end of the first quarter.
Over the full year, fundamental factors for the currency are likely to turn more supportive as the current account surplus widens and rate differentials narrow, providing more cushion against capital flows.
"That would likely result in lower baht volatility in the second half of the year and appreciation from current levels," noted the research.