Baht weakens as war risks and foreign fund flows hit sentiment

The baht closed last week, on April 24, at a fresh two-week low of 32.51 baht per US dollar, as markets awaited the outcomes of the Monetary Policy Committee (MPC) meeting and the US Federal Reserve (Fed) meeting.

Poon Panichpibool, money and capital markets strategist at Krungthai Global Markets, said Moody’s assessment of Thailand’s credit rating was an “indirect positive factor” that helped ease pressure on the baht.

It strengthened confidence among foreign investors and reduced the need for them to rush to sell Thai bonds or equities, as has happened in some emerging Asian markets, where heavy bond selling drove yields sharply higher and put severe depreciation pressure on local currencies.

However, the baht’s next direction will also depend on whether Fitch Ratings adopts a similarly positive stance.

At the same time, the most important risk factor remains the situation in the Middle East, which is the key variable being closely watched by financial markets around the world.

For the second quarter through to the end of the year, Poon expects the baht to weaken in the second quarter due to pressure from dividend-related flows and weak economic fundamentals. Its direction will depend largely on the severity of the Middle East situation.

He expects the Middle East conflict to ease in the second quarter, which could allow the baht to strengthen slightly by around 30–40 satang per dollar on news of a ceasefire agreement.

However, the currency will remain pressured by about 100 billion baht in foreign dividend flows and weak fundamentals, including the risk of a trade deficit and a decline in the services balance. These factors could cause the baht to weaken by around 1–4%, or 30–40 satang per dollar.

As a result, the baht is projected to close the second quarter of 2026 weaker at around 32.85 baht per dollar, plus or minus 0.25 baht, before strengthening towards 31.75 baht per dollar, plus or minus 0.25 baht, towards the end of the year.

The Bank of Thailand is expected to keep its policy rate unchanged at 1.00%. Targeted debt-resolution measures, together with coordination with the government’s economic stimulus policies, could attract foreign investors to longer-term Thai bonds and help ease depreciation pressure on the baht.

Poon added that if the Middle East situation intensifies, particularly if the United States proceeds with military operations in Iran and Iran retaliates strongly, such as by closing the Bab el-Mandeb Strait, the baht could weaken to test 32.75–32.85 per dollar.

It could also break through key resistance to 33.00–33.50 per dollar, especially from late April to early May, when foreign dividend-payment flows are expected.

Baht expected to weaken in second half

Roong Sanguanruang, senior vice-president of Global Markets Planning at Bank of Ayudhya, said the baht is expected to move within a range of 31.50–33.50 per US dollar in the second half of the year.

This forecast is based on the assumption that global crude oil prices will peak in the current quarter and gradually decline if energy supply problems ease somewhat.

She said there was still a possibility that the Fed would cut interest rates this year, in line with signs of a slowdown in the US labour market.

Moody’s improved outlook comes at a favourable time for Thailand’s fiscal position and effectively gives the government more room to borrow. However, risks surrounding the public debt-to-GDP ratio in the medium to long term still need to be monitored closely.

Prolonged Middle East tensions could weaken baht further

Kanjana Chokpaisalsilp, head of research at Kasikorn Research Centre, said Moody’s decision to revise Thailand’s outlook back to Stable would have a fairly limited impact on the direction of the baht and Thai bond yields. The baht is still moving mainly in line with sentiment over the Middle East.

However, the baht recovered and strengthened after Thailand’s March export figures grew by 18.7%, compared with market expectations of 11.5%. There was also likely dollar selling as investors adjusted positions ahead of this week’s MPC and Fed meetings.

In the short term, if uncertainty in the Middle East appears likely to persist, the baht could continue to weaken and test 33.00–33.50 per dollar. However, there is also a chance it could strengthen back to 31.50 if positive news suggests the situation will not drag on.

For this week, from April 27 to May 1, the baht is initially expected to move within a range of 31.70–32.70 per dollar.

Key factors to watch include the Middle East situation, foreign fund flows, the MPC meeting on April 29, the Federal Open Market Committee meeting on April 28–29, as well as meetings of the Bank of Japan on April 27–28, the Bank of England on April 30 and the European Central Bank on April 30.

Thai Chamber of Commerce warns of two-way pressure

Visit Limlurcha, vice-chairman of the Thai Chamber of Commerce and president of the Thai Future Food Trade Association, said the baht is still likely to face high volatility from several factors at the same time, including the direction of the US dollar, gold prices, energy prices and international capital flows.

The dollar continues to receive support from geopolitical uncertainty, particularly tensions in the Middle East and risks to key energy routes. This means the dollar still plays a safe-haven role during certain periods. At the same time, markets are assessing the direction of Fed interest rates, which have a direct impact on capital flows and Asian currencies.

For Thailand, specific risks to watch include pressure from gold transactions and capital inflows, which have previously been among the factors causing the baht to appreciate rapidly.

In the period ahead, the baht could face pressure in both directions. If the dollar strengthens due to global risks, the baht could weaken, raising the cost of imported energy.

But if capital inflows and gold prices continue to support the baht, the currency could strengthen to a level that affects the export sector.

“The key issue is not only whether the baht strengthens or weakens, but how to ensure it does not move out of line with the real fundamentals of the economy, especially as exports account for a large share of Thailand’s economy,” he said.

If the baht strengthens more than the currencies of competitor countries, or appreciates faster than justified by Thailand’s real economic potential, it may reflect speculation or short-term capital flows rather than the strength of the production sector.

A balanced and competitive exchange rate is therefore an important condition for maintaining Thailand’s manufacturing base, employment, farmers’ income and long-term export competitiveness.

Strong baht and expensive airfares hit tourism

Sisdivachr Cheewarattanaporn, honorary president and senior adviser to the Association of Thai Travel Agents, said baht appreciation had already affected spending by foreign tourists. The prolonged Middle East conflict, which has now lasted for two months, has pushed up global oil prices and made air tickets more expensive.

As a result, foreign tourist arrivals to Thailand in the second quarter are likely to be lower than previously expected, with the impact potentially extending into the second half of 2026.

Overall, current spending patterns among foreign tourists show that shopping in Thailand has declined. This differs from the pre-Covid-19 era, when tourists were keen to buy a wide range of products, from luxury goods to local brands for gifts and souvenirs.

Spending is now less vibrant. Chinese tourists, once known for shopping heavily, are now buying mainly consumer goods that are not available in their home country. ASEAN tourists are still shopping to some extent because they remain interested in Thai products, while European tourists tend to focus on travelling rather than shopping.

“The tourism sector is now being hit on two fronts: the stronger baht and the fighting in the Middle East, which has pushed up airfares. This has raised the overall cost per trip,” he said.

“At the same time, airlines have temporarily cancelled some routes or reduced flights during the summer schedule. Flights that continue to operate have had to raise fares because of higher fuel costs. As a result, foreign tourists are likely to delay their travel plans.”