The baht could appreciate further to 36.1 to the US dollar in the short term following recent gains to a one-month high on Monday as weaker than expected US economic data prompted the market to anticipate the Federal Reserve may start trimming US interest rates in September.
The Thai currency led Asian currency gains, trading at 36.4 baht to the dollar on Monday morning, up 0.4% from Friday's close of 36.58, as investors rushed to sell dollars after personal consumption expenditure (PCE) and core PCE pointed to cooling US inflation.
Meanwhile, benchmark 10-year US Treasury yields slid following closely watched jobs data that appeared to show the US labour market weakening, while the US unemployment rate was 4.1%, the highest in two and a half years, making a Fed rate cut more likely, Kanjana Chockpisansin, head of the research, banking and financial sector at Kasikorn Research Center, told the Bangkok Post.
"Market participants have raised the probability of a Federal Open Market Committee September rate cut to 77%, although they are not 100% sure," she said.
Year to date, the baht has depreciated slightly more than 6%. Factors to monitor include Fed chair Jerome Powell's testimony to Congress on July 9-10, US inflation expectations for June as well as France's election result.
"If the baht strengthens past 36.4 to the dollar, it is possible the currency could hit 36.1 in the near term," Ms Kanjana said.
However, the think tank is maintaining its forecast for third-quarter baht value at 36-37 to the greenback.
Poon Panitpiboon, market strategist at Krungthai Bank (KTB), views domestic political factors as continuing to pressure fund outflows, resulting in limited baht upside.
Investors also have to monitor global gold prices and movements of China's yuan, which currently affect the baht, according to KTB.
KTB targets the Thai currency to trade in a range of 36.4-36.55 to the dollar, while SCB Financial Markets estimates 36.35-36.55.