KTB says baht faces two-way risk, eyes test of 33.50 per dollar, watching Fed and Middle East

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Mr. Poon Panichpibool, a strategist for money and capital markets at Krungthai GLOBAL MARKETS of Krungthai Bank, or KTB, said Krungthai Global Markets sees the baht facing two-way risk in the short term, depending on shifts in market players' views on the direction of US Federal Reserve policy and on developments in the highly uncertain situation in the Middle East. This means market players should use a wider range of hedging strategies, especially options strategies. During the day, the overall risk-off mood in financial markets could pressure Asian currencies to weaken, opening the risk that the baht could easily weaken to test the resistance zone of 33.50 baht per dollar, especially if foreign investors gradually resume selling Thai assets in greater volume. However, Asian currencies, particularly the Chinese yuan, may gain some benefit from the latest developments in the US-China leaders' summit, which concluded that the US side would extend the pause on import tariffs on China by another two months and may consider lowering the ceiling on import tariffs on Chinese goods. That picture could also help slow the baht's depreciation. In the medium to long term, the view remains that the Fed is likely to raise rates one more time at its December meeting before holding rates steady until the second half of 2027 and then gradually cutting them. That leaves room for the baht to gradually strengthen, because market players' expectations for Fed rate hikes remain somewhat higher than the assessed path. At the same time, the risk that the Fed could raise rates faster and by more than expected has increased, after energy prices threatened to keep rising if the situation in the Middle East heats up again and drags on longer than expected. Technically, assessed with a trend-following strategy, the baht remains in an appreciating trend 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 depreciating trend until it can clearly strengthen back past the 33.00 baht per dollar zone again.

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