Analysts from international financial institutions have expressed concerns that Thailand’s baht is under pressure due to the latest political developments, just ahead of the Bank of Thailand’s (BoT) policy meeting on Wednesday, August 21.
Bloomberg reported that earlier, the baht had been one of the best-performing currencies in the region since July, supported by a strong recovery in tourism. This follows a period when the baht had slumped to its lowest level in two years against the dollar in May. However, this recovery may be jeopardized by Thailand’s recent political turmoil, which culminated in the Parliament voting to appoint Paetongtarn Shinawatra as the new Prime Minister after the Constitutional Court’s decision to remove Srettha Thavisin from office.
While Paetongtarn’s victory may ease political instability and allow investors to refocus on economic fundamentals, the baht could still face pressure. This is partly due to her support for lowering interest rates and potential friction with the BoT. Additionally, there are rumors that the new government might cancel the $14 billion digital wallet program.
Christopher Wong, a currency strategist at OCBC Bank in Singapore, noted, “The baht has underperformed more than expected due to recent political volatility. We continue to monitor whether the digital wallet program will be scrapped or replaced with other measures. In the short term, we expect increased volatility for the baht.”
Analysts are also closely watching rising household debt and concerns about Thailand’s investment appeal. Furthermore, there is apprehension over Paetongtarn’s criticism of the BoT, which she referred to as a “hindrance” to solving the country’s economic problems.
From a technical perspective, analysts believe the recent strengthening of the baht against the dollar is fragile. The currency is now considered to be in an oversold state against the dollar, with some analysts predicting that the baht could weaken to 37.5 baht per dollar by the end of the year. As of 8:00 AM on August 19, the baht was trading at 34.5 baht per dollar.
Traders are now focusing on the upcoming Monetary Policy Committee (MPC) meeting of the BoT on August 21, with expectations that the MPC will keep the policy interest rate at 2.50%.
The narrowing interest rate differential between Thailand and the United States, driven by the possibility that the U.S. Federal Reserve may cut rates at its September meeting, could provide some support for the baht.
