The Thai baht looks set to keep sliding against the US dollar, and a fresh read of the currency from MUFG argues the pressure is unlikely to ease any time soon. Even with the greenback trading on a softer footing worldwide, the dollar has managed to push the USD/THB pair above the 33.50 mark, a move that points to more downside for the baht rather than a rebound.
In plain terms, a weaker dollar would normally give emerging-market currencies some breathing room, yet the baht has not been able to hold its ground. That is exactly why MUFG believes there is still scope for further weakness in the months ahead.
A Low Carry Profile Weighs Heavy
One of the biggest drags on the baht is Thailand's low carry profile. When a country's interest rates sit relatively low, investors earn less for holding that currency and tend to rotate into higher-yielding options. That low-yield backdrop remains a persistent headwind, leaving the baht with little support to lean on.
Rebounding Oil Hits the Trade Picture
The recent rebound in oil prices is another problem for Thailand. MUFG expects that pickup in crude to worsen the country's terms of trade. For an economy that relies on imported energy, costlier oil pushes up the import bill, and that strain feeds straight through to the currency.
Middle East Tensions and the Central Bank
On top of that, the re-escalation of Middle East tensions has lifted growth risks. According to MUFG, that backdrop could encourage the Bank of Thailand to hold onto an accommodative policy stance to support the economy. An accommodative stance usually means keeping interest rates low, which only adds to the case for a softer baht.
Still Looking Expensive
Even with all these pressures, MUFG's valuation metrics suggest the baht remains modestly overvalued. That is a key reason the currency is seen having more room to correct, as the market gradually nudges it back toward what the models consider fair value.
The Inflation Backdrop
The inflation numbers point in the same soft direction. June's consumer price index fell 0.4% on the month, the largest one-month decline since April 2020. That dragged the annual rate down to 3.5% from May's 4.2% and snapped a three-month acceleration streak. Core prices went nowhere, staying flat on the month and easing to 2.6% year on year, with both readings coming in under consensus. Cooling inflation gives a central bank more room to keep rates low, which reinforces the broader story of pressure on the currency.
