Thai baht game for 1-year high as Fed rate hike chances dim

The baht is currently at a three-week high versus dollar.

The Thai baht has rallied to a three-week high on Monday as weak US data last Friday continued to keep the US dollar under pressure, and charts suggest that the baht is on course to hit a one-year high soon.

Technically, the USD/THB pair is keeping a downward track since October last year when it hit a 9-year high and if the same channel is held, it will all likely fall below 34.73 in the coming weeks, making a one-year high for the Thai currency.

As per Friday's data, non-farm payroll addition in the US fell to a five-year low in May, dampening the hawkish sentiment created by policymaker's comments and Q1 GDP revision over the past few days.

On 27 May, the Federal Reserve Chair Janet Yellen said: "It is appropriate – and I have said this in the past, I think – for the Fed to gradually and cautiously increase our overnight interest rate over time."

The Thai currency rallied 0.7% on Friday in Asian trade ahead of the US data, anticipating weak numbers, and closed at 35.35/USD.

The baht extended the upside on Monday even though most of its peers stabilized near their Friday's lows and ended the day at 35.29, its strongest since 12 May.

The Thai unit had touched a four-month low of 35.92/USD earlier this month and the bank of Thailand Governor said following the same that his currency is moving in line with the rest of the currencies of the region.

"We will continue to monitor the volatility so that it won't become a problem. We will keep the baht at appropriate levels so that it's not different from regional peers," said Veerathai Santiprabhob.

Now that the currency is strengthening is unlikely to be welcome news for him as stronger local currency would weaken the prospects of the country's exporters.

After rebounding from negative GDP rate in the second quarter of 2014, Thailand's growth rate has been in a sluggish range of 0.4%-1.0%.

The Thai economy expanded 0.9% in the first quarter of this year, up from 0.8% recorded in the previous quarter data showed on 16 May.

The country had seen several months of deflation by the time it managed to move above the zero line in April.

Overall, the slight positives in terms of growth and inflation can easily be affected by strengthening currency so the policymakers are likely to come up with some measures to deal with the scenario.