The baht is expected to depreciate and finish at 34.50 to the US dollar by year-end, before sliding to 35.50 in 2025 as new US government policies pressure the yuan next year, says Kasikorn Research Center (K-Research).
The Thai currency fell to a three-month low of 34.61 to the greenback in early trade on Thursday, compared with Wednesday's close of 34.20, as the dollar and US bond yield gained strength following the Federal Reserve's interest rate cut of 25 basis points (bps) overnight.
The Bank of Thailand's Monetary Policy Committee kept its policy rates unchanged at 2.25% on Wednesday.
"Even though the Fed cut rates to 4.25-4.50%, a two-year low, as the market expected, a hawkish statement from the central bank and its upgrading of the US's 2025 economic growth forecast lifted sentiment for the dollar, making Asian currencies including the baht weaken against the greenback," said Kanjana Chockpisansin, head of the research, banking and financial sector at the think tank.
Fed officials expect only two rate cuts next year, down from the four they projected in September. In Thailand, the market now expects rates to be cut twice in 2025, said Ms Kanjana.
"Trends now support dollar strengthening, pressuring the baht to continue depreciating against the US currency," she told the Bangkok Post, adding that K-Research maintains a Thai exchange rate outlook of 34.50 baht to the dollar by year-end 2024.
The Thai currency has weakened 1.2% year-to-date from 34.14 baht to the dollar at the end of 2023. The Chinese yuan and Japanese yen depreciated 2.7% and 9.3%, respectively, during the period. The South Korean won lost the most at 11%, while the Malaysian ringgit was the only Asian currency that gained against the greenback, rising 2%.
Looking to next year, Ms Kanjana said the yuan is likely to depreciate in line with the slowing mainland economy. Chinese authorities recently said they are considering allowing the yuan to weaken in 2025 as they brace for higher US trade tariffs as Donald Trump returns to the White House.
K-Research expects the baht to be pressured by yuan movements, finishing at 35.50 to the dollar at the end of 2025, she said.
Asian stocks, including in Thailand, slid yesterday after the Fed forecast fewer interest rate cuts next year. The yen weakened past the key level of 155 to the dollar as the Bank of Japan refrained from raising borrowing costs at its meeting early Thursday.
Gold dropped to near US$2,600 an ounce, while Bitcoin held steady above $100,000.
Pipat Luengnaruemitchai, an emerging Asia economist at BofA Securities, anticipates three 25bps cuts by the Bank of Thailand in 2025, starting in the second quarter, lowering the policy rate to the level recorded from 2015 to 2018.
"We maintain our view that the monetary policy stance is too tight, considering the inflation rate. Rate cuts could ease financial conditions, given loan growth contraction, rising asset quality, and the weakening of domestic demand," he said.
