Thai Baht is beginning to show signs of weakness

Deteriorating external trade surplus is the main negative for the currency.

The lack of interest rate policy support and deteriorating external trade balance suggest that the Thai baht will remain under weakening pressure. We revise our USD/THB forecast for end-2018 to 33.8 from 32.3

A big question for the markets this week is whether the Bank of Thailand tweaks monetary policy at the forthcoming meeting on Wednesday (June 20) to support the Thai baht (THB).

In its biggest single-day depreciation in more than a decade, the THB weakened by 1.4% to 32.7 against the USD last Friday.

More – Thai woman falls to death from Pattaya apartment building

This takes the pair through our 32.30 forecast for the end of this year, which we now revise higher to 33.8 on our view that a continued deterioration in the external trade balance will be the key negative for the currency.

THB performance isn’t weak enough to justify policy action

A counter question is whether the latest USD/THB spike has been strong enough to provoke a response from the central bank, which has been vocal about the need for continued accommodative monetary policy to support growth and less worried about a weak currency.

We don’t think so. An accelerated THB depreciation in recent months has reversed the appreciation early in the year and maybe a bit more.

But it’s still an Asian outperformer; the 0.2% year-to-date depreciation compares with big losers such as the Philippines, Indonesia and India – countries whose central banks moved to tighten recently.

We don’t think THB performance is weak enough to justify central bank action yet.

USD/THB moving higher

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