Thai Baht: Negative bias persists under US yield pressure – MUFG

MUFG’s Lloyd Chan reports broad Asia FX weakness versus the Dollar, with the Thai Baht underperforming. The Bank of Thailand has kept its policy rate at 1% as growth remains low and uneven and credit conditions soft. MUFG maintains a near-term negative bias on the Baht, citing Thailand’s low yield profile and ongoing US yield-driven portfolio outflows.

Baht faces yield and flow headwinds

"Asia FX has come under broad-based pressure against the US dollar, with several ASEAN currencies leading losses since last week’s FOMC meeting. A high-for-longer US rates environment is likely to remain a near-term headwind for regional currencies, particularly lower-yielding ones."

"We maintain a near-term negative bias on the baht."

"The Bank of Thailand kept its policy rate unchanged at 1% yesterday, in line with expectations. While policymakers now anticipate firmer growth this year, concerns remain that growth is still low and uneven. Credit growth has been subdued, and loan asset quality in the SME segment has deteriorated."

"Thailand’s relatively low yield profile, coupled with easing inflation pressures amid lower oil prices, should allow the central bank to maintain an accommodative, growth-supportive stance."

"However, elevated US yields will weigh on portfolio flows, with net foreign outflows from Thailand in June following inflows in May, despite the relief from lower oil prices. This shift in flows represents an additional headwind for the baht."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)