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The Thai baht has recorded a rise of 1.3% against the US dollar in October so far. Nevertheless, political uncertainty in Thailand has intensified and, therefore, the downside risk for THB have aggravated. Meanwhile, domestic demand weakness remains oddly supportive and the trade surplus has risen whereas Thai debt remains attractive amid resilient yields, economists at ANZ bank apprise.

Key quotes

“The currency has recently come under mild pressure as political protests in Thailand have intensified, presenting a near-term downside risk even as THB’s fundamentals point to further strength.”

“Persistent weakness in domestic demand is expected to subdue import demand for longer. On the other hand, Thai exports seem to be benefitting from improving global trade, albeit to a limited extent, since the share of tech-related goods is relatively smaller in Thailand’s total exports. Yet, Thailand’s monthly customs trade balance has lately been on the rise.”

“If escalating protests result in political instability, public spending and investment climate could get undermined, which would dampen the recovery in domestic demand further. Thus, as odd as it may sound, weak domestic demand could continue to provide support to the baht.”

“The baht will continue to jostle with uncertainty even as its fundamentals remain supportive. We expect further appreciation, although the balance of risks is now tilted to the downside. The impact of the political situation on the currency could worsen in the near-term, warranting a close watch.”