Baht slides past 32 as Strait of Hormuz fears push oil above US$100

The baht weakened past the 32-per-dollar level, falling to its softest point in more than three months amid pressure from a stronger US dollar and higher global oil prices driven by tensions in the Middle East.

As of 8.45am on Friday (March 13), the baht was trading in a range of 32.10–32.12 per dollar, after earlier weakening to 32.21 per dollar, compared with the previous day’s close of 31.84 per dollar.

Dr Kanjana Chokpaisalsilp, head of research at Kasikorn Research Centre, said the baht and other Asian currencies had weakened in the same direction as the US dollar strengthened in its role as a safe-haven asset following an escalation in tensions in the Middle East.

This was particularly the case after Iran’s supreme leader signalled a move towards closing the Strait of Hormuz, one of the world’s most important oil shipping routes.

At the same time, global oil prices continued to remain elevated, prompting market concerns over inflationary pressure in the period ahead. US bond yields also rose after investors reduced expectations for interest rate cuts by the US Federal Reserve (Fed) this year.

Poon Panichpibool, a money and capital market strategist at Krungthai Global Markets, Krungthai Bank, said the baht opened this morning at 32.17 per dollar, weakening from the previous close of 31.85. 

Overnight, the baht gradually weakened beyond the key resistance level of 32.00 per dollar amid concerns that the conflict in the Middle East could become more prolonged and severe.

Those tensions pushed Brent crude prices back above US$100 per barrel. At the same time, stronger-than-expected US economic data, such as initial jobless claims falling to 213,000, led investors to lower their expectations for Fed rate cuts. The market now assigns around a 75% probability that the Fed may cut rates only once this year.

These factors supported a rise in the yield on 10-year US Treasury bonds to around 4.27%, further strengthening the dollar and weighing on global investment sentiment.

In global financial markets, sentiment shifted back into risk-off mode. The S&P 500 fell 1.52% and the Nasdaq dropped 1.78%, while in Europe the STOXX 600 declined 0.61% on concerns over inflation and the possibility of tighter monetary policy.

Meanwhile, the US Dollar Index (DXY) rose to near the 100 level. If it can hold clearly above 99.5, it may have scope to move on to test 101 in the next phase.

As for the baht outlook, analysts said the weakening momentum beyond 32 per dollar could open the way for the currency to test the resistance zone of 32.20–32.30 per dollar, and if pressure persists it may weaken further towards 32.50.

However, the baht still faces two-way risk and could remain volatile in either direction depending on developments in the Middle East. News or major events linked to the regional conflict could quickly affect the direction of financial markets.

Analysts therefore recommended that businesses and investors adopt scenario analysis and use risk management tools such as options to cope with exchange-rate volatility at a time of heightened uncertainty in global financial markets.

The baht is expected to move within a range of 31.90–32.30 per dollar over the next 24 hours. Key factors to watch include developments in the Middle East, the direction of global oil prices, capital flows and major US economic data, including the Personal Consumption Expenditures (PCE) index, durable goods orders, job openings data and consumer confidence.