Thai baht hits new low against US dollar amid gold price drop

The 2023 financial year has seen the Thai baht rank as one of the region’s poorest performing currencies, depreciating to a low of 37.14 to the US dollar on Tuesday – a level not seen since November of the previous year.

The recent plummet in gold prices, with a decline of around 5% or US$7.45 (274.65 baht) per ounce, has prompted increased demand for dollars for gold purchases, further weakening the Thai currency.

Year-to-date, the baht has lost nearly 6.8% of its value, falling from its end-of-year position of 34.61 baht against the US dollar. This places the Thai currency as the third-worst performer this year, preceded only by the yen and Korean won, which have weakened by 12% and 7.7% respectively.

The Malaysian ringgit has also seen a similar depreciation trend to the baht, falling approximately 6.8%.

Kanjana Chockpisansin, head of research at Kasikorn Research Center (K-Research), made known that the depreciation since August, when the new government took office, saw the decline speed up more than other currencies in the region.

K-Research has subsequently downgraded its outlook for the Thai exchange rate to 37.55 baht to the dollar, a slip from 36.60 baht. This revision came after the baht fell past 37 to the greenback on Tuesday morning.

Currency movement

The Bank of Thailand addressed the currency movement, attributing it to external factors and assuring it aligns with regional peers.

In a statement, the central bank confirmed its readiness to manage the currency against irregular movements and highlighted the current investor anticipation for clarity on the fiscal policies of the new government.

Sakkapop Panyanukul, senior director at the Central Bank, said that the dollar is strengthening based on the possibility the Federal Reserve will maintain interest rates longer than expected.

K-Research identified major contributors to the baht’s depreciation as a disappointing second-quarter Thai GDP growth rate, the Fed’s interest rate hikes, the slowing Chinese economy, the depreciation of the yen, and high oil prices.

Thailand’s declining exports, leading to a growing current account deficit, and concerns over a widening fiscal position due to new government spending on economic stimulus have also played a part in the weakening of the Thai currency.

A recent bullish statement from Fed officials about interest rates being sustained at higher levels for longer led the dollar to appreciate, causing US bond yields to rise. US economic data surpassed expectations, convincing the market that the Fed could potentially increase rates at its meetings in either November or December.

Inflation

Oil prices exceeding US$90 (3,330 baht) per barrel have ignited inflation and demand for dollars, further weakening the baht.

K-Research warns that Thailand, as a net oil importer, could face a worsening current account if oil prices remain high.

The depreciation of the baht has also been fuelled by continued capital outflows from the Stock Exchange of Thailand (SET), one of the worst-performing bourses globally this year, and the Thai bond market, partly to purchase US bonds.

Looking at the potential strengthening of the baht, Prime Minister Srettha Thavisin ruled out government intervention, with the central monitoring currency movements.

The depreciation does benefit the export and tourism sectors, which typically contribute 50% and 20% of GDP respectively. However, a weak baht may negatively impact the price of imported oil and related costs.

ASPS forecasts a less weakening and more strengthening of the local currency in a range of 35-35.5 baht to the dollar.

Trade deficit

Expected fourth-quarter improvements in economic figures, decreasing trade deficit, and improving services balance could lead to a current account surplus and a strengthening baht, as witnessed in September 2022.

According to ASPS, the baht typically strengthens in the fourth quarter, with an average increase of 3.4% from 2017-2022, reported Bangkok Post.

K-Research also anticipates the baht to trade at the current level in the short term.

Kanjana said that once the Fed stops hiking rates, possibly by the end of this year, the baht should strengthen, possibly by year-end or early next year.

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