Thailand’s currency has received a boost this year from a rally in gold prices. But strategists warn that won’t be enough to protect it as tariff risks and interest-rate cuts start to bite.
The baht is up around 1.2% against the dollar this year, more than double the gain of a broad gauge of Asian currencies. A key reason is Thailand’s role as a gold-trading hub, which has helped lift the currency as the precious metal hit new highs.
The baht has a much closer link with gold than most emerging market currencies, with the two prices having a correlation coefficient of 0.57 over the past five years, according to Bloomberg calculations using weekly changes. A coefficient of 1 would mean they are moving in lockstep.
But many strategists remain bearish on the outlook for the currency, which could be hit by a yawning interest-rate gap with the US as well as reciprocal tariffs threatened by US President Donald Trump.
The Bank of Thailand cut its policy rate to 2% in February, creating a discount of 250 basis points to the upper bound of the federal funds rate. Rate cuts typically weaken currencies as traders move their money elsewhere.
“The baht’s outperformance will eventually ebb, as low yielders would suffer from a bounce in the dollar,” said Stephen Chiu, chief Asian foreign-exchange and rates strategist at Bloomberg Intelligence.
The baht slipped 0.3% to 33.89 against the greenback on Tuesday. It is likely to weaken to 35 per dollar in the next three months and to 36 within the next 12 months, according to a March 7 report by Goldman Sachs Group Inc. Bank of America Corp economists also said the risks to the currency are now tilted to the downside, in a note published last week.
Of course, the fate of the baht against the dollar depends just as much on Thailand’s outlook. The greenback’s recent decline has eased the pressure but Thailand’s exposure to tariffs means the currency will remain vulnerable, said Alvin Tan, a strategist at RBC Capital Markets in Singapore. He predicted that dollar/baht will trade within a broad range of 32 to 37 this year.