Thai Baht: Overvaluation points to weakness against US Dollar - MUFG

MUFG’s Lloyd Chan notes that softer US inflation data has weakened the Dollar and lowered Fed rate hike expectations, but USD/THB has still broken above 33.50. He highlights Thailand’s low carry, deteriorating terms of trade from higher Oil prices, increased growth risks from Middle East tensions, and valuation metrics indicating the Baht remains modestly overvalued, supporting a weaker Baht outlook.

Baht under pressure despite softer Dollar

"Despite the softer dollar backdrop, USD/THB has broken above the 33.50 level, and we continue to see scope for further baht weakness."

"Thailand’s low carry profile remains a headwind, while the recent rebound in oil prices is likely to worsen the country’s terms of trade."

"Growth risks have also increased amid the re-escalation of Middle East tensions, which could encourage the Bank of Thailand to maintain an accommodative policy stance to support the economy."

"In addition, our valuation metrics suggest that the baht remains modestly overvalued."