The Thai baht is likely to face further pressure against the US dollar this week after falling to its weakest level in almost 15 months, as escalating tensions in the Middle East unsettle global markets.
Krungthai Global Markets expects the currency to trade between 34.00 and 34.40 baht per dollar in the days ahead, with geopolitical uncertainty, rising oil prices and renewed strength in the US currency continuing to weigh on sentiment.
The baht weakened to 33.64 per dollar last week, its lowest level in around 14.5 months. The decline coincided with a sharp fall in global gold prices, which dropped below US$4,000 an ounce, while the dollar strengthened as oil prices surged.
Market concerns have intensified following reports of continued clashes involving the United States and Iran since July 11, raising fears that the conflict could become prolonged and further disrupt global energy supplies.
Poon Panitchpibun, a money market strategist at Krungthai Global Markets, said the baht could initially test resistance between 33.75 and 33.80 per dollar. The next significant resistance level is expected at 34.00 in the near term.
The currency is also likely to remain highly volatile as investors assess developments in the Middle East alongside changing expectations for US Federal Reserve monetary policy.
A reduction in geopolitical tensions or weaker expectations of further Fed interest rate increases could allow the baht to recover. However, Krungthai said any appreciation would probably be limited to between 33.40 and 33.50 per dollar, with stronger support seen at 33.00.
“A significant shift in market expectations for US interest rates could move the baht by at least 25 satang,” Poon said, adding that businesses and investors should adopt a range of hedging strategies, including the use of options, to better manage foreign exchange risk.
Krungsri Global Markets offered a slightly narrower forecast, predicting that the baht would move within a range of 33.30 to 34.00 per dollar this week. It said the renewed rise in global oil prices would be the primary factor behind further depreciation.
Despite the stronger dollar, the US currency weakened against most major currencies last week, apart from the Japanese yen, after June inflation figures came in below market expectations. Krungsri said headline inflation eased to 3.5%, while core inflation slowed to 2.6%.
Bank of Thailand Governor Vitai Ratanakorn said the central bank was closely following the latest developments in the Middle East and remained prepared to manage excessive currency movements in accordance with Thailand’s economic fundamentals.
Mr Vitai said the baht had generally moved in line with other regional currencies. Although its depreciation has provided some support to Thailand’s export and tourism industries, he warned that a prolonged Middle East conflict could push up inflation expectations and weaken the country’s economic growth prospects.
