The baht could slide beyond 33 to the US dollar, with high volatility possible if the war in the Middle East is prolonged, forcing Thailand, a net oil importer, to pay a significantly higher import bill, according to Kasikorn Research Center (K-Research).
The Thai currency weakened to a three-month low of 31.95 baht to the greenback in the offshore market on Tuesday before rebounding to 31.73-31.75 on Wednesday, compared with Monday’s close of 31.45, said Kanjana Chockpisansin, head of research, banking and finance at the think tank.
The decline was driven by capital flight from risk assets and gold to the US dollar, which is regarded as a safe-haven currency. The greenback is also supported by expectations the Federal Reserve will cut interest rates gradually and fewer times than the market anticipated, as US inflation rises in response to higher oil prices, she said.
“If the war in the Middle East drags on, oil prices will remain high for a prolonged period, hurting Thailand significantly because the country is a net oil importer,” Ms Kanjana told the Bangkok Post.
“The trade balance would be reduced significantly, nudging the slim trade surplus into a deficit.”
K-Research anticipates the baht weakening to 32.8 to the dollar in a worst-case scenario based on the war in the Middle East.
“But if oil prices top copy00 per barrel for a prolonged period, the baht will almost certainly slide to near 33 to the dollar,” she said.
Brent crude’s front-month contract has surged 35.7% year-to-date, while West Texas Intermediate crude has risen 31.2%. Thailand spends roughly 5-6% of GDP on oil imports, significantly higher than neighbouring Southeast Asian countries, said Ms Kanjana.
Baht volatility has risen from 7% last year to 7.7% year-to-date, higher than in neighbouring countries, as Thailand faces weak domestic pressures, she said.
Median volatility is in the range of 3-5%, Ms Kanjana said.
SCB Financial Markets expects the baht to trade at 31.6-31.9 to the dollar in the near term, as the dollar index strengthens amid intensified fighting in the Middle East.
Source: Bangkok Post