Baht at 19-month high against US dollar

The baht surged to a 19-month high against the dollar, driven by a weaker US currency and profit-taking in gold.
On Monday, the baht opened at 32.92 per dollar, marking its highest level in 19 months, compared to Friday’s closing rate of 33.60 baht.
The appreciation of the baht, breaching the 33-baht-per-dollar mark, followed the dollar’s depreciation after the US Federal Reserve (Fed) sharply reduced its policy rate by 50 basis points last week to curb inflation.
Additionally, the Fed’s rate reduction is supported by updated US economic data and aims to facilitate a soft landing for the US economy, according to Krungthai Global Markets under Bank of Ayudhya (Krungsri).
The research house said the Fed is expected to make further rate cuts, reducing its policy rate by another 50 basis points to 4.25-4.5% by year-end, for a total of 100 basis points in 2024.
Additional cuts of 100 basis points in 2025 and 50 basis points in 2026 are also anticipated.
Krungsri predicts the baht will continue strengthening against the dollar this week, trading within a range of 32.75-33.50 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 Oct 16, according to Krungsri.
Krungthai Global Markets said 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.
It expects the baht to continue strengthening and move within a range of 32.60-33.30 to the dollar this week.
Poon Panitchpibun, money market strategist at Krungthai Global Markets, noted that the baht is likely to move in a firmer trend, with increased volatility expected by year-end, due to the weaker dollar in line with the Fed rate cuts.
On Friday, Sethaput Suthiwartnarueput, governor of the central bank, said 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, said the governor.
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,” he said.
In his view, the baht has moved in line with regional peers though the Thai currency is “slightly stronger”.
Appreciation of the baht and other Asian currencies have been spurred by the Fed’s aggressive rate cut by 50 basis points last week and other central banks worldwide have begun to do the same.
“Central banks in Asia have already started to reduce their policy rates but the magnitude of the cuts are slimmer than those in Western countries. That trend has resulted in funds flowing into the region and driving Asian currencies to appreciate recently,” said Mr Wikij.
“However, the level of the baht’s appreciation remains manageable. The government’s plan to issue bonds in foreign currencies early next year, for example, will help ease the strength of the baht looking forward.”
Kasem Prunratanamala, head of Thai research at CGS International Securities, said 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,” he said.
“The Fed is projected to cut rates by 25-50 basis points each at the next two meetings, so we expect more fund flows to the Thai market. This, in turn, could drive up the baht further, even though it has already strengthened against most regional peers year to date,” Mr Kasem added.