Baht hits new low on charter woes, US data

“The market now believes that the United States’ central bank might have a greater probability of increasing its interest rate this month following the US’ announcement that its unemployment rate has declined to 5.1 per cent while average income per hour has also increased more than expected,” Chirathep Senivongs Na Ayudhya, spokesman for the Bank of Thailand, said yesterday.

The baht has retreated in tandem with currencies in the region since the market has swung back to the expectation that the US Federal Reserve will hike the country’s interest rates at its meeting this month.

Tim Leelahaphan, economist at Maybank Kim Eng Securities (Thailand), said the baht weakened from 35.832 per US dollar at the opening bell to near 36 during the morning session due to news on the draft charter, the ongoing flow to safety driven by the uncertainty in the US Fed’s rate hike and the uncertainty in China after the closing of the Shanghai and Hong Kong stock markets to mark the World War II anniversary last Thursday and Friday.

The baht climbed to Bt35.99 as of 10am before falling to Bt36.12 as of 5.15pm.

 “The US non-farm payroll figure that was revealed last Friday is not as good as expected, but their unemployment rate has continued to decline, which is a good thing, so there is still uncertainty regarding the Fed rate hike in September. 

“That will be the same story for a while now,” he said.

“Domestic political factors and the continuous outflow to safe havens such as the Japanese yen and US dollar contributed to the sinking of the baht this morning.

“But the political risk is still low, so once people digest the situation, then everything should follow the same path,” he said.

Maybank’s foreign exchange research team expects the baht to trade around 36.5 per US dollar by the end of this quarter due to the government’s current preference for a weak baht and the lead-up to the Fed lift-off this month, before slightly strengthening to 36.3 by the end of the year on the back of a milder moderation in the strength of the US dollar.

Nevertheless, political concerns are likely to weaken the baht at the ends of the first and second quarters of next year to 36.5 and 37.

Usara Wilaipich, senior economist at Standard Chartered Bank, said the fall in the baht was mainly due to external factors in the US and not so much on internal factors via the NRC’s rejection of the draft charter. 

The baht has softened but there was no significant movement in the capital markets.

“The baht’s depreciation today is caused by the publication of US economic numbers last Friday.

“The unemployment rate has dropped to its lowest since June 2008 but the non-farm payroll is still lower than market consensus,” she said.

“Meanwhile, Federal Reserve Bank of Richmond president Jeffrey Lacker commented that the case is still strong for the Federal Reserve to raise short-term interest rates in September, which has added to the current strengthening of the US dollar,” she said.

StanChart expects the baht to peak at about Bt36 per US dollar at the end of this quarter, but maintains its prediction that the US Fed will hike its interest rate in December.

The global economic situation is not supportive for US rate normalisation right now.

“The Bt36 per US dollar is an important psychological barrier for foreign and domestic players while new fiscal stimulus measures mean that the role of monetary policy will be reduced. 

“The expectation that the Monetary Policy Committee will continue to maintain the policy rate at 1.5 per cent for a while along with the expected rises in imports from increased government spending on mega-projects means that the baht will have less room to depreciate further next year,” she added.

The bank expects the baht to scale back to Bt35.6 per US dollar by the end of this year before strengthening to Bt34.75 by the end of the third quarter in 2016.