THE Thai baht is set to weaken further as the Middle East war is intensifying and dragging on while the US Federal Reserve also may not be in a rush to cut interest rates, PPTVHD36 said today (March 20).
Mr. Wachirawat Banchuen, senior financial market strategist at Siam Commercial Bank, said the Thai baht’s plunge stopped just above 32.80 to the dollar, its weakest level in five months, and will likely continue weakening in the short term.
The Thai currency will stay in a range of 32.60 – 33.10 to the dollar in the next month due to the following factors:
– The Middle East war will likely to drag on and intensify, even though the US, being concerned about oil prices and inflation, has adopted a less aggressive stance. This is because Israel continues to attack Iran and has expanded its targets to energy infrastructure with this diminishing any sign of a possible agreement between the two countries.
A six-week timeline of the war would keep Brent crude oil prices high at around $108-115 per barrel, putting pressure on US Treasury yields, strengthening the US dollar index, and causing regional currencies, including the Thai baht, to weaken further.
– The risk of stagflation has increased, as the US labour market shows signs of weakening, while inflation has been accelerating even before the war due to the service sector. Therefore, it is possible that the Fed will adopt a hawkish policy, meaning it may cut interest rates more slowly and less so than previously expected.
Wachirawat predicts that the Fed would at most only cut interest rates once this year from previously expected twice within the year, with the soonest being early fourth quarter. However, if the war drags on and inflation is higher than expected, that is CPI returning above 3.5 percent, the Fed may be unable to cut interest rates at all this year.
– The direction of global capital flows is changing. Investors are reducing their holdings of emerging market assets and shifting towards the US dollar as a safe haven currency, causing regional currencies like the yuan to weaken.
Therefore, support for the Thai baht has also decreased. Furthermore, heavy capital inflows seen in January and February have turned into outflows this month, with a total of 80 billion baht having left the stock and bond markets combined.
This period of rapid depreciation of Thai baht is an opportunity for exporters to sell their USD/THB holdings at a range of 32.85-33.35 to the dollar. They could consider buying options to hedge against the Thai baht appreciating rapidly when the Middle East war winds down.
The weakening of the Thai currency to 32.50 to the dollar or below that point is also an opportunity for importers to gradually purchase the American currency.
CAPTIONS:
Top and Front Page – A graphic image on currency exchange. Credit – PPTVHD36
Insert – Mr. Wachirawat Banchuen, senior financial market strategist at Siam Commercial Bank. Photo – PPTVHD36
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