The Thai baht continued its upward trend against the US dollar, even as the country entered a period of political crisis. The USD/THB exchange rate plunged to a low of 32.35 on Thursday, its lowest level since October last year and 7.50% below the year-to-date high.
Thai baht ignores the ongoing political crisis
The Thai baht ignored the ongoing political crisis and continue to soar against the US dollar. This crisis started when the constitutional court suspended Prime Minister Paetongtarn Shinawatra because of an ongoing ethics probe.
This ethics probe was related to a leaked phone call with Hun Sen, the head of Cambodia, that sparked anger in the country. As such, analysts anticipate that her government could collapse now that the Bhumjaithai Party has exited the coalition. This is notable since this party has 69 parliamentarians in parliament.
Her only hope is that the other nine parties in her coalition have pledged to stand by her, for now. Analysts warn that many of these parties will start to exit in the coming weeks. Such a move will lead to a legislative gridlock in parliament.
There are other potential scenarios, including the dissolution of parliament, escalating protests that will hurt the lucrative tourism sector, and more tensions with neighboring Cambodia.
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The ongoing political crisis is happening at a time when the Thai economy is struggling. Recent data showed that the economy grew by 0.7% QoQ in the first quarter. This translated to a 3.1% rate, down from the previous 3.3%.
Thailand’s inflation has remained in the negative zone, falling to minus 0.57% in May. At the same time, business and consumer confidence retreated gadually, while the tourism sector has been weaker than expected.
Therefore, there is a likelihood that the Thai central bank will resume its interest rate cuts. It left them unchanged at 1.75% in its last week meeting, saying:
“We have limited ammunition so timing is important. We need to see when the most effective timing to cut the rate.”
The bank now expects that the economy will grow by 2.3% this year. It expects that the impact of the trae war will be less severe. Its base case is that the US will apply a 18% tariff rate, which could be lower.
The USD/THB exchange rate has also plummeted due to the ongoing decline in the US dollar. The US dollar index (DXY) has plunged sharply in the past few months, moving from $110 earlier this year to $96. It has dropped against most currencies as traders position for the upcoming Federal Reserve cuts.
USD/THB technical analysis
The daily chart shows that the USD/THB exchange rate has been in a steep sell-off in the past few years. This crash happened after it formed a double-top pattern at 37.24 and a neckline at 34.11. A double-top is one of the most bearish patterns in technical analysis.
The USD to THB exchange rate has remained below the 50-day and 100-day Exponential Moving Averages (EMA), a sign that bears are in control.
It is now hovering slightly above the important support at 32.13, the lowest level in October last year. Also, top oscillators like the Relative Strength Index (RSI) and the MACD have continued to drop.
Therefore, the USD/THB pair will likely continue falling as sellers target the key support at 32.13. A break below that level will indicate further downside, potentially to the support level at 30.
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