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USD/THB: The Baht Fights for its Life

USD/THB: The Baht Fights for its Life

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The USD/THB exchange rate is at an inflection point on the long-term chart. How it performs over the next few weeks could have long-lasting implications.

The US dollar has spent the last three weeks trading at 16-years highs against the Thai baht. Subsequently, we are likely to see one of two things happen in the coming weeks. Either the dollar explodes higher, or the Thai baht stages a comeback. But which scenario is more probable?

If momentum is the deciding factor, round one goes to the greenback. The dollar has risen for three consecutive weeks against the baht, and closed higher in 21 out of the last 28 weeks.

Now on to interest rates. US interest rates are currently 2.75% and are expected to move higher by 75 basis points at the next FOMC meeting. Rates in Thailand on the other hand, are 0.75%, with the Bank of Thailand forecast to increase 25bp at the next meeting. The dollar takes round two.

Now comes inflation. The US Consumer Price Index (CPI) data for July showed prices rose at an annualized rate of 8.5%. Whereas, the same gauge in Thailand rose 7.60%. The key difference is that the rate of inflation in the US is slowing, but in Thailand it’s going up. For this reason, the BOT may soon have to start hiking aggressively to combat inflation. Result: Thai baht wins round three.

The judges scorecards point to a resounding win for the dollar. And on balance, it looks like the right result. The United states is much better prepared to deal with higher rates and a stronger currency. Thailand however, relies on exports and tourism to drive growth. A weaker currency can entice holidaymakers, and encourage companies to send money to Thailand for exports. With this in mind, the dollar could deliver a knockout blow against the baht in the not-to-distant future.

US Dollar to Thai baht Forecast

The monthly chart highlights the dollar’s unstoppable rally against the baht in the last two years. In that time, USD/THB has gained almost 25%. As a result, the baht has weakened to levels last seen in 2006.

Notably, the 36.00 area has been the right time to buy the baht against the us dollar. Although, given the current global economy, this time might be different. If the dollar breaks above last month’s 36.98 high, it’s likely to go much higher. Here, we might expect USD/THB to trade into the 38.00 to 40.00 range.

That being said, the Relative Strength Index (RSI) of 73.90 is starting to look stretched. Because of this, the first signs of dollar weakness could trigger a sharp reversal. Taking this into account, a monthly close below the 2008 high of 36.44 marks down the bullish call to bearish.

USD/THB Price Chart

Elliot Laybourne
Elliott is a former investment banker with a 20 year career in the city of London. During this time he held senior roles at ABN Amro, Societe Generale, Marex Financial and Natixis bank, specialising in commodity derivatives and options market-making. During this time, Elliott’s client list included Goldman Sachs, JP Morgan, Credit Suisse, Schroders Asset Management, and the Pennsylvania State Public School Employees Retirement System, amongst others. Today, he splits his time between Thailand and Dubai, from where he provides trading consultancy and business development services for family office and brokerage clientele.