Is the Thai baht at risk with to Donald Trump’s return to the White House?

The Thai baht faces vulnerability due to increased trade reliance on China and the US amid political changes. Trump’s presidency and Fed’s policies may weaken the currency, impacting economic stability.

Key Points

• The Thai baht is at risk due to Donald Trump’s return to the White House, as the country relies heavily on trade, making it vulnerable to U.S. tariffs. Citigroup identifies the baht and Taiwan dollar as the most exposed in Asia to economic shifts influenced by Trump’s policies. Early market reactions indicate that trade-reliant nations are particularly susceptible.
• Following the election, Fed rate cut predictions have decreased, while the Dollar Index is strengthening, creating pressure on the Thai baht amid political uncertainties. The recent appointment of Kittiratt na Ranong as the Bank of Thailand’s chairman raises concerns over potential governmental influence on monetary policy, with expectations for lower interest rates in the coming year.
• Jerome Powell, the Fed chairman, has indicated a cautious approach to rate cuts, citing the strength of the U.S. economy. Current forecasts predict an average of THB34.70 per dollar in 2024, however, challenges for policymakers may lead to a rise in the baht’s exchange rate, posing issues for exporters and foreign investors.
• The baht’s real effective exchange rate (REER) stands 1.5% higher than its 10-year average, based on data from the Bank for International Settlements. This metric reflects the currency’s value relative to a basket of other currencies, where a higher REER suggests reduced trade competitiveness.

The Thai baht is on track to experience significant vulnerability amid changing political dynamics, particularly due to Donald Trump’s resurgence in the White House. Given Thailand’s high dependency on trade—boasting a trade volume that is 129% of its GDP—the baht’s position is precarious, especially as U.S. monetary policy, under the hawkish Federal Reserve, threatens to further weaken it. The rise of the dollar, fueled by Trump’s policies intended to enhance U.S. production, poses additional risks for trade-reliant economies, positioning Asian currencies, including the baht, for potential declines.

Thailand’s interdependence with major trading partners like the U.S. and China, which account for a third of its exports, magnifies this risk, especially if Trump implements import restrictions. Analysts from Citigroup have flagged the Thai baht—alongside the Taiwanese dollar—as particularly susceptible to tariffs, indicating a looming threat to the currency’s stability amid shifting global trade policies.

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Moreover, the uncertainty surrounding the Federal Reserve’s monetary policy and Trump’s election victory has led to a decline in expectations for interest rate cuts, now projected at three instead of four within the next year. As U.S. Treasury yields increase and the dollar index strengthens, the Thai baht faces compounded pressures exacerbated by internal political dynamics.

The recent appointment of Kittiratt na Ranong, a government ally and former Finance Minister, to lead the Bank of Thailand, raises concerns about the politicization of the central bank, potentially undermining its independence. Previous forecasts had suggested a rate cut to 2% early next year, but Kittiratt’s influence might steer policymakers towards lower rates, adding complexity to the economic landscape. With projections indicating a depreciation of the baht, touching THB34.70 per dollar in 2024—and fears of it reaching THB36-37—exporters and investors alike may face significant challenges, underscoring a period of heightened uncertainty for Thailand’s economy.