The baht is on course to appreciate to 34 to the dollar or an even stronger position in the near term after hitting a 13-month high yesterday as the Bank of Thailand held the policy rate at 2.5%, which could spur inflows ahead of the US Federal Reserve's next meeting in September.
After closing on Tuesday at 34.21, the Thai currency surged to 34.06 to the greenback early on Wednesday, the highest level since July 2023, before easing to 34.13-15.
The baht gained in line with most Asian currencies as the dollar index plunged to its lowest level since December last year on expectations the US central bank would ease its stance as early as next month.
The baht appreciated more than 2% over the past two days ahead of the Bank of Thailand's meeting on Wednesday, when it decided to maintain the policy rate at a decade-high level of 2.5%.
"The baht has quickly gained strength amid continued fund inflows as the market is convinced the Fed will cut rates in September," said Kanjana Chockpisansin, head of research, banking and the financial sector at Kasikorn Research Center (K-Research).
K-Research anticipates the baht will trade in a range of 34.00-34.20 to the dollar in the short term.
"If the baht gains continuously to break 34 to the greenback, it could continue to appreciate," she told the Bangkok Post.
Asia Plus Securities (ASPS) said as Thailand's second-quarter GDP expanded at a higher rate than the market forecast, this prompted the central bank to believe the current interest rate is suitable for maintaining economic and financial stability.
"That supported the ease of fund outflows and strengthened the stability of the baht," ASPS said.
If the Fed gradually reduces US rates from a 23-year high of 5.25-5.5%, and the Bank of Thailand maintains its policy rate, the gap between Thai and US rates will narrow.
"The smaller gap of 0.25 percentage points means the baht would gain by 0.70 to the dollar," noted the brokerage.
"If the Fed cuts US rates by 0.25-0.50 percentage points as expected, the Thai currency would gain by 0.7-1.4 baht when compared with the dollar."
Caretaker Finance Minister Pichai Chunhavajira played down the baht strengthening on Wednesday, saying the local currency reflects market confidence, which led to increased capital inflows into Thailand.
Such fluctuations are still manageable and there is no cause for concern, he said, adding Thai entrepreneurs need to adapt by improving the quality of their products.