Thai baht hits 19-month high as US dollar weakens

The Thai baht has soared to its highest level in 19 months against the US dollar, driven by a weaker American currency and profit-taking in gold markets.

Opening at 32.92 per dollar today, the baht marked a significant rise from September 20’s closing rate of 33.60 baht. This appreciation follows the dollar’s depreciation, which was triggered by the US Federal Reserve’s (Fed) recent policy rate cut by 50 basis points to curb inflation.

Krungthai Global Markets under the Bank of Ayudhya (Krungsri) reported that the Fed’s rate reduction, supported by updated US economic data, aims to facilitate a soft landing for the US economy. Further rate cuts by the Fed are expected, with predictions of another 50 basis point reduction to 4.25 to 4.5% by year-end, totalling 100 basis points in 2024. Additional cuts of 100 basis points in 2025 and 50 basis points in 2026 are also anticipated.

Krungsri forecasts that the baht will continue to strengthen against the dollar this week, trading within a range of 32.75 to 33.50 baht. Despite the significant reduction in the Fed’s policy rate, the Bank of Thailand’s Monetary Policy Committee (MPC) is expected to maintain the policy rate at 2.5% at its upcoming meeting on October 16, according to Krungsri, Krungthai Global Markets stated.

“Yesterday’s baht appreciation, breaching the 33-baht-per-dollar level, was partly attributed to profit-taking in gold after global gold prices hit record highs.”

Global gold prices are expected to remain on an upward trend, with the baht showing a higher correlation with gold prices than other regional currencies compared to the dollar.

Money market strategist Poon Panitchpibun from Krungthai Global Markets remarked that the baht is likely to follow a firmer trend, with increased volatility expected by year-end, due to the weaker dollar in line with the Fed rate cuts.

Thai baht

Sethaput Suthiwartnarueput, governor of the central bank, said on September 20 that despite the Fed’s 50-basis-point rate cut, the impact on the Thai economy would be minimal. However, the cut affects the baht against the dollar due to the weaker US currency. The central bank will intervene in the currency market as required to ensure the baht moves in line with other regional currencies, the governor added.

Wikij Tirawannarat, Senior Vice-President of Bualuang Securities, believes that currency fluctuations are quite normal and the ongoing appreciation of the baht is still manageable.

“Fluctuations are quite normal for currencies. The value of the baht, for example, has changed from 37 to the dollar earlier this year to 32 now.”

According to Wikij, the baht has moved in line with regional peers, although the Thai currency is slightly stronger.

“The appreciation of the baht and other Asian currencies has been spurred by the Fed’s aggressive rate cut by 50 basis points last week. Other central banks worldwide have also begun to follow suit.

“Central banks in Asia have already started to reduce their policy rates but the magnitude of the cuts is slimmer than those in Western countries. That trend has resulted in funds flowing into the region and driving Asian currencies to appreciate recently.”

Wikij emphasised that the level of the baht’s appreciation remains manageable and pointed out that the government’s plan to issue bonds in foreign currencies early next year will help ease the strength of the baht, reported Bangkok Post.

Kasem Prunratanamala, head of Thai research at CGS International Securities, noted that the baht has strengthened almost 4% year to date, more rapidly than regional peers.

“With the prospect of less aggressive rate cuts in Thailand compared to regional peers, we believe the baht will continue to strengthen against peers, which should also provide some room for the Thai central bank to cut its rate.”

Kasem also highlighted that the Fed is projected to cut rates by 25 to 50 basis points each at the next two meetings.

“We expect more fund flows to the Thai market, which could drive up the baht further, even though it has already strengthened against most regional peers year to date.”