Thai currency’s rise is fuelled by a soft US dollar, recent Fed easing and sharp acceleration in gold prices
[SINGAPORE] The baht’s rally has pushed it to hit records and outshine regional peers as Asia’s second-best performing currency for 2025, sparking fears of the impact on the country’s export-driven economy, as well as highlighting tourism implications.
The currency climbed to its highest level against the greenback in more than four years on Monday (Dec 15), trading at 31.46 per US dollar. The USD/baht currency pair was trading at 31.43 on Friday Singapore time, down about 9 per cent in a one-year period and 8.3 per cent year to date.
It has also appreciated to its strongest levels against the Singapore dollar in nearly three years – since January 2023 – at 24.35 baht. The SGD/baht currency pair was last trading at 24.33 on Friday Singapore time, steadily weakening to hit a one-year decline of 4.1 per cent and a year-to-date decline of about 3 per cent.
The Thai currency’s rise is fuelled by a soft US dollar and recent Fed easing, as well as a “sharp acceleration in gold prices”, with which the baht has a strong positive correlation, OCBC foreign exchange and rates strategist Christopher Wong told The Business Times.
Thailand reportedly has a significant pool of commercial gold traders, on top of many households investing in physical gold as part of their personal reserves.
A Tuesday report by Reuters noted a rise of transactions by these gold traders. This comes amid greater US dollar sales to buy the Thai currency, thereby compounding the baht’s strength.
The strength of the renminbi likely contributed to the baht’s outperformance as well, given Thailand’s high trade exposure to China, Maybank analysts said in a Tuesday report. They noted that the baht is the second most sensitive currency to renminbi moves within Asia.
Maybank flagged seasonal factors as drivers of the baht’s strength, noting that the currency’s performance tends to be stronger in the November-to-December period – a potential result of the peak tourism season.
It noted that tourist inflows from Europe, India and US remain “significant” enough to affect the baht, despite this year’s levels easing from 2024.
But for Thailand, the strengthening of its currency is not welcome news.
The baht’s “excessive appreciation” is having an impact on the economic growth of the country – which, as a net exporter, cannot withstand such a strong currency, the country’s finance minister told Reuters.
Notwithstanding the recent records, OCBC’s Wong thinks baht strength could moderate.
By the end of next year, OCBC forecasts indicate that the baht could trade at 24.70 per SGD, factoring in some degree of weakness from current levels.
The bank also sees the currency trading at 31.60 per USD by end-2026, driven by “moderate” greenback softness and offset by the baht unwinding some of its recent gains.
This was echoed by MUFG senior currency analyst Lloyd Chan, noting how further baht gains could be limited. By end-2026, Chan sees the currency trading at 32 baht per USD, and at 25 baht per SGD. Headwinds faced by Thailand – a slowing domestic economy, fiscal constraints and lingering political uncertainty – could weigh on the baht’s performance, Chan said.
A DBS report on Monday predicted that the baht could drift lower to a range of 31 to 33 against the USD in 2026, amid the government’s growth-supportive stimulus and the property market’s potential bottoming out.
Expected rate cuts from the Bank of Thailand (BOT) in December could weigh on the baht, DBS senior FX strategist Philip Wee and FX and credit strategist Chang Wei Liang said.
Central bank moves
OCBC’s Wong noted that potential measures to restrain the baht’s overt strength and room for BOT to ease monetary policy may eventually limit the currency’s gains.
The Thai government’s plans to have state-owned firms accelerate imports and repay foreign debts could increase demand for foreign currency, which is likely to tame baht strength “to some extent”, Wong said.
Additionally, BOT has proposed measures to curb baht strength by raising the ceiling for foreign income repatriation, which is set to kick in by the end of the year.
It also proposed a measure to require major gold traders to report relevant transaction data so as to improve monitoring efficiency and assess their impact on the Thai baht.
Maybank analysts, however, believe that lifting the ceiling for foreign income repatriation will have “limited impact” on the baht. While Thai exporters are required to repatriate their income under the present framework, they are not obligated to convert these proceeds into baht.
“(Thai exporters) may instead retain the funds in foreign currency deposit accounts at authorised local banks,” said the analysts in their Tuesday note.
Corporates may not be actively converting their foreign currency balances to baht – as recent data showed that foreign currency deposit holdings in Thailand have risen over the past few years, said Maybank.
Meanwhile, MUFG’s Chan pointed out that a slower pace of domestic growth in 2026 could curb baht gains even though the currency may get continued support from Fed rate cuts, which are likely to persist next year.
“Thailand’s current account could soften due to higher US tariffs and a still modest tourism recovery, while fiscal constraints restrict the scope for government stimulus,” he said.
The South-east Asian country’s upcoming general election on Feb 8 poses further downside risks to the baht, as it could influence fiscal policy and weigh on investor sentiment, he added.
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