The baht will continue to depreciate amid ongoing outflows ahead of the US presidential election early next month to possibly trade below 34.50 baht to the dollar if the Republican candidate Donald Trump is victorious, says Kasikorn Research Centre (K-Research).
The Thai currency fell to 33.84 against the greenback, the lowest level in more than one and a half months, during Thursday's morning trade, down from Tuesday's close of 33.50, as other regional currencies also weakened compared to the dollar.
"There are fund outflows from the Thai stock and bond markets while the dollar receives support from US bond yields as the Federal Reserve [Fed] has sent several signals that the central bank will cut the interest rates gradually," said Kanjana Chockpisansin, head of research, banking and the financial sector at the think tank.
Yields for the benchmark 10-year US Treasury note rose to their highest level since July 25 on Wednesday, hitting 4.26% in morning trade, due to concerns that the tight November election may put further pressure on bonds.
"If Mr Trump wins, there is a possibility that his government will spend a lot or borrow more money. That would make it harder for the US to reduce inflation and affect the Fed's interest rate cut," she told the Bangkok Post.
"All of those factors support the dollar strengthening compared to Asian currencies, including the renminbi [yuan]," Ms Kanjana added.
So far, K-Research has maintained the in-house view of Kasikorn Bank that the Fed will trim US rates by 0.25% at each of its two remaining meetings this year in November and December.
Meanwhile, the Bank of Thailand is expected to maintain its policy rates at its meeting in December following a 25-basis-point dip this month, she noted.
"We think the Bank of Thailand's Monetary Policy Committee [MPC] will make its decision on rates based on the Thai context rather than the Fed's moves."
Kavee Chukitkasem, head of research and content at Pi Securities, said funds continue to flow out of the Stock Exchange of Thailand (SET) ahead of the US election on Nov 5, while the SET's current price-to-earnings ratio is not cheap in the view of institutional investors.
"Uncertainties concerning the US election are prompting investors to divest risky assets such as stocks or debt instruments, and increase their holdings of safer assets, particularly the dollar and gold. But, normally, stocks will rebound post-election no matter who wins it," he said.