In April 2020, many countries around the world, including Thailand, began to implement lockdown measures to combat the coronavirus (COVID-19) pandemic. This has resulted in economic stagnation. At the same time, foreign investors became net sellers of Thai stocks and bonds. Meanwhile, the Baht has gradually strengthened since April due to the softening US Dollar and specific factors in Thailand, such as gold exports and repatriation of funds to the country.
Looking ahead, it is expected that the Baht will continue to appreciate because of Thailand's current account surplus. In addition, we at KResearch view that extra attention must be paid to the movements of the US Dollar because the COVID-19 transmission rate in the US has not been stable yet while unrests may increase risk to the second wave of the pandemic, which will likely undermine the US economic performance, image and confidence towards President Donald Trump's administration. Since the Fed may have to ease its monetary policy further, markets are waiting to see whether the Fed will push its policy rate to below zero, or not. Rising supply of the US Dollar will present a downside risk to the US Dollar, going forward.
Given this, the Baht will likely appreciate to a range of THB31.00-31.50/US Dollar during the remainder of 2020. To avoid the impact of the strong Baht on Thailand's economic recovery, the Bank of Thailand (BOT) may continue to keep an eye on the Baht with a priority to ensure that it will not deviate from fundamental factors. Meanwhile, the latest signs show that the BOT is in the process of monitoring two financial transactions that may affect the Baht's volatility. They include transactions undertaken by gold traders, especially when gold exports remain at high levels and there are repurchases of bonds with the maturity of less than a year. This reflects that foreign investors are using Thailand as a destination to park their funds over the short term again and the BOT may have to consider additional measures to reduce such an impact on the Baht, going forward.