KTB Flags Baht Two-way Risk, Eyes Fed Rates and Middle East

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Mr. Poon Panichpibool, a strategist at Krungthai GLOBAL MARKETS of Krungthai Bank, or KTB, said Krungthai Global Markets sees the baht at risk of two-way risk in the short term, depending on shifts in market players' views on the monetary policy outlook of the US Federal Reserve, or FED, and on developments in the highly uncertain situation in the Middle East. This means market players should adopt more diversified hedging strategies, especially options strategies. On the export front, analysts broadly assess that Thailand's August exports still benefited from the AI boom, but higher energy prices, along with imports of goods for building data centers and production for export driven by the AI boom, will keep import growth high, leaving Thailand's trade balance in continued deficit of about 3.6 billion dollars. For the intraday trading range, the baht may still be unable to clearly weaken past the resistance zone of 33.50 baht per dollar, while further appreciation may lack additional support until the Middle East situation clearly improves, allowing Brent crude prices to fall back to around 100 dollars per barrel or lower. Initially, the baht is seen as having support around 33.30 baht per dollar. Close attention should also be paid to the movement of the Japanese yen, after it weakened past 158 yen per dollar, raising the risk that Japanese authorities will conduct a check rate or even intervene in the yen. In the medium to long term, Krungthai Global Markets maintains its view that the FED has a chance of one more rate hike at its December meeting, before holding rates until the second half of 2027 and then gradually cutting them. This leaves room for the baht to gradually strengthen somewhat, since market players' views on the FED's rate hike outlook remain somewhat more hawkish than assessed, and the risk that the FED may hike faster and more than expected has risen, after energy prices risk continuing to climb if the Middle East situation heats up again and drags on longer than expected. Technically, judged by a trend-following strategy, the baht remains in an uptrend on the weekly time frame until it clearly weakens past the 33.50 baht per dollar zone. On the daily time frame, the baht remains in a downtrend until it can clearly strengthen back past the 33.00 baht per dollar zone.

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KTB sees baht two-way risk from Fed policy outlook and Middle East uncertainty, with medium-term Fed hike view leaving room for baht to gradually strengthen.

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