Thai baht predicted to appreciate amid expected US interest rate cuts

[webfact]

The Thai baht is predicted to appreciate to 33 against the US dollar in the near future, as the market anticipates an early start to US Federal Reserve interest rate cuts, possibly as soon as March. This expectation could trigger an inflow of funds into the Thai currency. On Wednesday, the baht registered at 34.26 to 34.28 per US dollar, a slight depreciation from Tuesday’s close of 34.14, a trend that mirrors other regional currencies due to the rise in US bond yield and increased dollar demand.

 

According to Kanjana Chockpisansin, head of research at Kasikorn Research Centre, fluctuations in the Thai currency throughout the year will largely depend on the Fed’s rate cuts. She suggests that the baht could appreciate to 33 against the greenback in the near term. “The market believes the Fed will be quick to cut rates, doing it aggressively this year,” Kanjana stated.

 

The market anticipates that the US central bank will slash rates by up to 1.5 percentage points in 2024, reducing the rate from 5.25% to 5.5% to approximately 4% by the end of the year. However, Kasikorn Research Centre predicts a more cautious approach from the Fed, forecasting a rate cut of only 0.75 percentage points this year, reported Bangkok Post.

 

Kanjana further explained, “The Fed worked very hard to curb US inflation by raising and maintaining rates at a high level. 

 

by Alex Morgan

Picture courtesy of Pornprom Satrabhaya

 

Full story: The Thaiger 2024-01-04

 

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[EVENKEEL]

it is what it is.

[lordgrinz]

It's actually up right now, at 34.52 

[bkk6060]

I doubt they will cut in March.

[retarius]

I should add that I read on a US website, that the Fed minutes of the last meeting were released and appear to indicate that there were many members who favoured maintaining high interest rates for a prolonged period, and were not convinced that rates should come down. The article did not say what the split was ie how many for high rates and how many for reducing rates.

This is one of the perils of guessing at future exchange rates, and Thai exchange rates are not in the hands of the BoT. 

[khunjake]

If Thailand really wanted to attract FDI and compete with regional peers, the USD/THB should be closer to 40. If you look Indonesia, Malaysia and Vietnam, they are far more attractive countries to build factories and hire local workers because their currencies are so vastly undervalued (intentionally) to attract FDI. 

[hotchilli]

4 hours ago, EVENKEEL said:

it is what it is.

Teflon coated.

[timendres]

3 hours ago, retarius said:

I should add that I read on a US website, that the Fed minutes of the last meeting were released and appear to indicate that there were many members who favoured maintaining high interest rates for a prolonged period, and were not convinced that rates should come down. The article did not say what the split was ie how many for high rates and how many for reducing rates.

This is one of the perils of guessing at future exchange rates, and Thai exchange rates are not in the hands of the BoT. 

 

The Fed will begin cutting rates as soon as unemployment begins to show consistently rising numbers, or the financial systems (banks) begin to show trouble that cannot be contained by reasonable measures. Both are possible in 2024. However, this scenario, especially rising unemployment, will be the result of recessionary forces, which we already see in virtually every other major economy. That will, in turn, affect Thailand negatively both in exports and tourism, which will likewise make the THB weaker. 

[retarius]

1 minute ago, timendres said:

 

The Fed will begin cutting rates as soon as unemployment begins to show consistently rising numbers, or the financial systems (banks) begin to show trouble that cannot be contained by reasonable measures. Both are possible in 2024. However, this scenario, especially rising unemployment, will be the result of recessionary forces, which we already see in virtually every other major economy. That will, in turn, affect Thailand negatively both in exports and tourism, which will likewise make the THB weaker. 

You do not know what the Fed will do, you are just guessing. I am sick of people claiming to know things they have no way of knowing.

[IAMHERE]

1 hour ago, timendres said:

especially rising unemployment

A lot of baby boomers are retiring and there aren't enough 20 to 40 year olds to replace them and fill newly created jobs. I find it doubtful unemployment will go over 4%. I've read the Fed considers 5% unemployed as full employment.

[timendres]

2 minutes ago, retarius said:

You do not know what the Fed will do, you are just guessing. I am sick of people claiming to know things they have no way of knowing.

 

I did not state that I "know what the Fed will do". I talked about their likely actions within a given context.

The Fed has two mandates from Congress - price stability and full employment.

They have a third "mandate" that is not from Congress - stability of the financial system.

They are achieving their price stability after the recent inflation spike.

This does not require them to reduce rates, and they will be inclined to keep them high for fear of re-inflation.

However, the yield curve inversion, and slowing economies in Europe and Asia, suggest unemployment is the more likely force on the horizon.

If unemployment remains low, interest rates will remain (relatively speaking) high, unless the third mandate comes into play.

If unemployment marches higher, rates will come down.

So, if you say that I cannot predict unemployment or inflation or bank stability, then you are absolutely correct.

But I can predict what the Fed will do once those forces are determined. Anyone can.

[timendres]

12 minutes ago, IAMHERE said:

A lot of baby boomers are retiring and there aren't enough 20 to 40 year olds to replace them and fill newly created jobs. I find it doubtful unemployment will go over 4%.

 

Emphasis on "newly created jobs". If we see a serious recession, companies will cut jobs. However, I believe you are correct that, outside of recessions, unemployment should remain quite low for many years. Unless AI and robotics change the landscape dramatically.

[soalbundy]

7 hours ago, retarius said:

I should add that I read on a US website, that the Fed minutes of the last meeting were released and appear to indicate that there were many members who favoured maintaining high interest rates for a prolonged period, and were not convinced that rates should come down. The article did not say what the split was ie how many for high rates and how many for reducing rates.

This is one of the perils of guessing at future exchange rates, and Thai exchange rates are not in the hands of the BoT. 

The market, the real economy, will decide the rate cuts, the FED can only respond. The FED has caused credit tightening to such an extent that money is in short supply in a debt based economy which means low demand for goods and debt delinquency, the result will be high unemployment. The FED will cut drastically, possibly to zero again, but due to the lag effect it wont help, too high for too long will cause the FED's reaction to be too little too late, even negative rates won't help, a world synchronized economic crisis is on the horizon which is what the inverted yield curves are prophesying.