Baht Likely to Decline Further Amid Escalating Mideast Tensions

The Thai baht is expected to weaken to 33.50 per US dollar this week. Geopolitical tensions in the Middle East, rising US bond yields, and declining gold prices are driving this trend, with Asian economies also impacted by oil import reliance.

Key Points

• The Thai baht is projected to weaken to 33.50 against the US dollar this week due to Middle East conflict and dollar’s safe-haven appeal.
• Rising US bond yields and regional currency depreciation, influenced by oil import reliance, also contribute to the baht’s decline.
• Lower gold prices and the Bank of Thailand’s reserve management add further pressure, with an expected trading range of 32.50-33.50 for the year.

Baht Depreciation Amidst Geopolitical Tensions

The Thai baht is projected to depreciate further, potentially reaching 33.50 per US dollar this week. This forecast follows a recent testing of a nine-month low at 33.04 on Monday. The primary driver for this expected weakening is the heightened uncertainty stemming from the conflict in the Middle East, which is bolstering the US dollar as a safe-haven asset. Investors are increasingly revising their expectations, now anticipating that the US Federal Reserve will refrain from further policy rate cuts this year, consequently leading to rising US bond yields. Furthermore, the baht’s movement is mirroring that of other regional currencies, which are also experiencing depreciation against the dollar.

Contributing Factors to Baht Weakness

Beyond geopolitical risks, the baht is facing additional downward pressure from a significant decline in global gold prices, which have fallen approximately 22% from their February peak. This trend is partly attributed to investors reallocating their capital from gold to oil. The Bank of Thailand is expected to intervene to manage baht volatility and depreciation, aiming to mitigate the impact on business operating costs. However, the concurrent rise in global oil prices is anticipated to escalate the cost of imported raw materials. International reserves held by the Bank of Thailand also saw a weekly decline, from $288 billion to $284 billion as of March 13th.

Outlook and Market Adjustments

The baht has exhibited a gradual depreciation trend since Friday, aligning with escalating tensions and concerns about a prolonged Middle East conflict. This situation has prompted market participants to adjust their outlooks for monetary policy decisions by major central banks, including the Federal Reserve, the Bank of England, and the European Central Bank. The continued fall in gold prices, from around $4,700 per ounce to the support level of $4,400, has further exacerbated the pressure on the baht relative to the US dollar. The overall expectation is for the baht to trade within a range of 32.50–33.50 per US dollar for the remainder of the year.

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