At the latest Federal Open Market Committee meeting, September 21-22, 2021,the Federal Reserve (Fed) signaled that it would begin scaling back its asset purchases via the QE measure over the next several months. Concurrently, markets have assessed that there is a higher chance of a Fed Funds rate hike during 2022 as reflected in the latest Fed's dot plot, pending a reassessment on the economic and COVID-19 pandemic situation at that time.
Due to the Fed's signals, the Thai Baht weakened to test the THB33.60/USD level, its weakest in four years, on the morning of September 23, 2021, before paring losses somewhat later on. We at KResearch are of the view that the softening Baht may reflect the fact that markets have already been pricing in news of QE tapering for quite a while, meaning a chance for further depreciation of the Baht in the future will depend on the US economic outlook, and whether the US labor market data will come out better than expected or not. If the US economic growth and inflation figures are weaker than prior estimates, the US Dollar will likely soften, as well.
Looking into the remainder of 2021, KResearch views that important factors that will determine the Baht's value are: 1) the Fed's QE tapering; and 2) the COVID-19 situation and vaccination drive at home. Having assessed economic foundations between the US and Thailand, we are of the view that the Fed's plan to exit its accommodative policy stance before 2021 is an important factor that will cause the greenback to strengthen and the Baht to trade at the weaker side of THB33.00/USD for most of 2021. If the Thai currency weakens substantially due to such developments, importers are urged to gradually book a forward contract to purchase the green back so as to help alleviate any related impact on their margin somewhat.