Baht to Rebound Against US Dollar by Year-End, SCB Predicts

The Thai baht is expected to regain strength against the US dollar in the latter part of the third quarter, reversing a short-term depreciation trend, according to Siam Commercial Bank Financial Markets (SCB FM). Wachirawat Banchuen, senior financial markets strategist at SCB FM, stated that the baht's weakening trend is largely temporary and does not signal a prolonged decline. The Thai currency recently dipped below 33 baht to the dollar, briefly approaching 33.5, driven by short-term factors rather than underlying economic deterioration. "The baht has not weakened significantly compared with other regional currencies and remains relatively stable," Mr Wachirawat noted. "The recent depreciation mainly reflected temporary capital outflows, particularly foreign selling in the Thai equity market. Once those flows subsided, the baht quickly stabilised." He emphasized that the current dip should not be compared to the 1997 Asian financial crisis, as it was largely a one-off event rather than the start of a sustained sell-off. In the near term, SCB FM projects the baht to trade in a range of 33-33.50 to the dollar, with modest downside pressure remaining from the widening interest rate differential between Thailand and the US. The Bank of Thailand is expected to keep interest rates unchanged to support its fragile economy, while markets anticipate the US Federal Reserve to maintain relatively high interest rates due to persistent inflation. Thailand's trade balance has been a headwind, recording deficits of around US$10 billion in May and roughly $5 billion last month, adding pressure on the currency. Despite near-term weakness, Mr Wachirawat anticipates the baht will begin appreciating in late Q3 or early Q4 as market expectations for wider US-Thailand interest rate differentials appear overly aggressive. "Both the Fed and the Bank of Thailand are likely to leave policy rates unchanged for the remainder of the year as inflation has started to ease," he said. Consequently, the US dollar is expected to lose momentum, reducing pressure on the baht. Furthermore, Thailand's external position is likely to improve with a narrowing trade deficit and a current account gradually returning to neutral. "These factors should help the baht recover, with the currency likely to strengthen to 32.5-33 per dollar by the end of the year," Mr Wachirawat said. He advised exporters to hedge around 60% of their expected foreign currency receipts through spot transactions, using options to retain flexibility amid volatility. Importers are advised not to rush dollar purchases at current levels, hedging only about 20% of their foreign currency requirements and waiting for the baht to strengthen before increasing dollar purchases.