Barclays projects the Thai baht will remain rangebound against the U.S. dollar, trading between 32.00 and 33.00 for the remainder of the year. The bank notes that a period of near-term dollar softness could allow the baht - alongside other Asian cyclical currencies - to join seasonal summer gains, but that broader external pressures are likely to constrain meaningful appreciation.
Seasonality typically turns against the baht in the third quarter, Barclays says, reflecting the calendar’s weakest stretch for tourism. The bank acknowledges, however, that May showed early signs of a pick-up in arrivals, and that August could receive a tailwind from European summer holidays which may partially offset the effects of Thailand’s peak monsoon season.
Despite these possible positive offsets, Barclays highlights several structural drags on the baht. Weaker tourism demand, an elevated energy import bill and a narrowed current account surplus together create less supportive external fundamentals for the currency. Those factors, in Barclays’ assessment, limit the likelihood of a sustained tightening in USD/THB beyond the projected range.
Barclays reports that the Bank of Thailand’s nominal and real effective exchange rate estimates have fallen year-to-date by roughly 4% and 2%, respectively. The bank does not expect Thailand’s central bank to engage in a forceful defense of the baht. Rather, it anticipates intervention aimed at smoothing excessive swings in the exchange rate rather than preventing a gradual depreciation.
The investment bank estimates that the Bank of Thailand purchased about $6.5 billion of foreign currency in the second quarter through the week ended June 5. Barclays has previously noted the central bank’s discomfort when the dollar-baht rate moves rapidly below the 32 level.
Foreign portfolio inflows have provided support to the currency, with near $1 billion of net purchases of Thai bonds and equities during the second quarter, according to Barclays. The bank also comments on gold, saying the longer-term outlook for the metal remains constructive. At the same time, Barclays expects short-term influences, together with the Bank of Thailand’s measures tied to gold, to lessen gold price swings as a driver of immediate currency moves.