Bangkok Baht Soars, But Trade War Clouds Outlook
The Thai baht’s remarkable surge this year is expected to slow as escalating global trade tensions and a downturn in the nation’s stock market threaten its future prospects. Over the past month, the baht appreciated by an impressive 2.7%, reaching 33.817 per dollar on Thursday, making it the top performer among Asian currencies. However, this strong performance may be short-lived. Analysts at MUFG Bank Ltd. predict the baht could weaken to 36 per dollar in the second quarter, as the seasonal boost from the start of the year dissipates.
Several factors contributed to the baht’s recent strength. The currency benefited from President Donald Trump’s temporary restraint on imposing sweeping trade tariffs on Asian countries outside of China, including Thailand. Thailand’s economy is considered particularly vulnerable to the detrimental effects of a trade war. Further bolstering the baht’s rise was the easing of crude oil prices—a welcome development for Thailand, a net oil importer. This positive influence occurred despite the Thai stock market falling to its lowest point since November 2021, highlighting a growing divergence between the currency and equity markets.
This divergence is unsustainable, according to Lloyd Chan, a currency strategist at MUFG. He anticipates the baht will weaken, aligning more closely with the struggling stock market. This correction, he predicts, is likely to occur in the second quarter, coinciding with the off-peak tourism season, increased dividend outflow pressures, and the potential for further tariff actions following the conclusion of the ongoing US trade review, scheduled for April 1st.
The looming trade war, a major source of anxiety for global markets, poses a significant threat to Thailand’s export-oriented economy. While the country has so far avoided direct US tariffs, the interconnected nature of global trade means any escalation in trade disputes could have a ripple effect, impacting key industries such as automotive manufacturing, electronics, and agricultural products. This potential disruption to trade flows could put downward pressure on the baht, reversing its recent gains.
Furthermore, the slump in the Thai stock market reflects underlying concerns about the country’s economic outlook. The decline in stock prices can be attributed to various factors, including global economic uncertainty, domestic political instability, and waning investor confidence. This negative sentiment in the equity market could spill over into the currency market, contributing to the baht’s anticipated weakening.
The baht’s future trajectory remains uncertain, depending on the evolution of global trade relations and the performance of the Thai economy. While the currency has enjoyed a period of strength, the combination of trade concerns and stock market weakness creates a challenging environment for sustained appreciation. Investors and businesses with exposure to the Thai baht should carefully monitor these developments and adjust their strategies accordingly as the currency navigates these turbulent waters. The second quarter will be a crucial period for the baht, providing valuable insights into its resilience and long-term prospects.
