ECONOMISTS believe the country's status as net creditor and the current account surplus will strengthen the baht after it had hit a six-year low to the US dollar on Thursday, however the global price of gold is expected to continue to drop due to the str
Usara Wilaipich, senior economist at Standard Chartered Bank, expects the baht that is currently weakening because of overseas factors and the drop in the gold price, to strengthen after the short-term psychological effect dies down due to its strong backup.
“It is like trying to kick a football up the hill; it will eventually roll down since you are kicking it up the slope without anything to provide upward momentum,” she said.
Maybank Kim Eng Securities (Thailand) expects the baht to be at 34.5 by the end of the third quarter.
The baht has slid from Bt32.835 to the greenback on April 29 (the day of the second consecutive cut of the policy interest rate this year) to trade at Bt34.936 as of 4pm yesterday. The global gold price has also continued to drop to $1,084 per ounce at the same time yesterday compared with $1,160 per ounce on July 12 (the day that the value of the precious metal started to decline amid the strengthening of the US dollar).
She explained that the reason why the baht had outperformed other currencies before the consecutive cuts in the policy interest rate in March and April was because Thailand was a net creditor: The country’s current lending in US dollars is around $190 billion while its foreign debts stand at around $140 billion, which means the Kingdom is a net lender of around US$50 billion.
Somchai Amornthum, executive vice president at Krung Thai Asset Management (KTAM) said the baht was unlikely to slide that much further than Bt35 to the US dollar, as the country’s current account surplus is expected to continue to expand. Imports normally increased in July and August every year but oil price has dropped 50 per cent. “Although exports have continued to contract since the beginning of the year, in the overall scenario the surplus in the current account will be even bigger,” he said.
“The global oil price is also expected to be in the region of $50 per barrel for quite some time due to the increase in supply and that is another support for surplus in the current account, as Thailand is a net importer of oil,” he added.
Thailand currently carries a current account surplus of $2.127 billion as of May 2015.
Kamolthun Pornphaisarnvichit, director of the Gold Research Centre, said the global gold price is expected to drop by about $30 to around $1,050 per ounce during the period of expectation of an expected Fed rate hike around September this year. If the US interest rate is hiked in September, then gold is expected to trade around $1,050-$1,150 per ounce in September and October.
“The gold price in Thailand has dropped less than the global gold price because of the weakening baht. The price in Thailand has dropped by 3.2 per cent to around Bt18,000 per gold bar since the beginning of the month until now while the global gold price has dropped by 4.5 per cent in the same period of time,” he said.