The baht is likely to be volatile in the near term, pending clear signs from the US Federal Reserve (Fed) concerning interest rate cuts, with the Thai currency expected to slide to 37.25 baht to the dollar within 1-3 months, bouncing back to 36 to the greenback by yearend, says Kasikorn Research Centre (K-Research).
The baht edged down in line with other regional currencies to 36.8 to the dollar Monday morning, compared to Friday’s close of 36.72, as the greenback rebounded slightly ahead of the release in the US of April’s consumer price index and producer price index later in the week, said Kanjana Chockpisansin, head of the research, banking and financial sector at the think-tank.
Inflation expectations released on Friday by the University of Michigan, in which one-year inflation expectations rose to a six-month high of 3.5% in May versus 3.2% last month, while five-year expectations also rose to 3.1% from 3%, supported the market’s forecast of “high for longer” US interest rates, she said.
“We anticipate the Thai economy will stage a rebound from the second quarter but the baht would remain under the influence of the US interest rate trajectory,” she told the Bangkok Post.
As soon as the Fed makes its stance clear on the rate cuts, which is expected no later than the end of the third quarter, that would support the Thai unit’s strength to 36 baht to the dollar by yearend, Ms Kanjana said.
BMI, a unit of Fitch Solutions Group, shared a similar view, saying eventual stabilisation of monetary conditions would pave the way for the currency to stablise.
According to BMI, the baht has depreciated by nearly 7% year-to-date, making it one of the worst-performing currencies in the region.
“We are not ruling out any further spikes in volatility of the baht. Much of this will be led by the constant repricing of interest rate expectations in the US. Upside pressures on the dollar should fade once market expectations stabilise and the Fed begins its first cut, which is likely to happen in July,” said the London-based research firm.
The Bank of Thailand is poised to begin easing earlier than the Fed.
“A possible 25-basis-point cut in June would put the [central] bank ahead of the Fed in its loosening cycle, which could induce short-term pressure on the baht. Yet, we think the bank will be mindful of cutting rates too extensively due to elevated household debt and currency stability concerns,” BMI said.