Gold-powered rally in Thai baht is now at risk, strategists say

A rally in gold prices has helped the Thai currency this year. But strategists caution that won’t be enough to shield it as tariff risks and interest-rate cuts begin to hurt.

The baht is up about 1.2% this year against the dollar, more than double the advance of a broad measure of Asian currencies. Part of the answer lies in Thailand’s status as a gold-trading hub, and the way it has buoyed the currency as the precious metal reached new heights.

The baht is significantly more directly connected to gold than many other emerging market currencies, with the two prices showing a 0.57 correlation coefficient over the past five years, based on Bloomberg calculations of the weekly change. A figure of 1 would indicate they were moving in lock step.

But a number of strategists are still bearish on the currency’s outlook, and say it could face a gaping interest-rate gap with the U.S. as well as tit-for-tat tariffs threatened by U.S. President Donald Trump.

The Bank of Thailand lowered its policy rate to 2% as of Feb, resulting in a 250 basis point discount to the upper bound of the federal funds rate. Rate cuts generally tend to weaken currencies, as traders take their money elsewhere.

“The baht’s outperformance will soon fade, as low yielders would be hit by a rebound in the dollar,” said Stephen Chiu, chief Asian foreign-exchange and rates strategist at Bloomberg Intelligence.

On Tuesday, the baht weakened 0.3% to 33.89 per dollar. It will likely weaken to 35 per dollar over the next three months and 36 over 12 months, Goldman Sachs Group Inc. said in a March 7 report. Risks to the currency are now tilted to the downside, economists at Bank of America Corp. also said in a note published last week.

And the outlook for the baht versus the dollar rests just as heavily on that of Thailand. The recent easing in the greenback has taken some pressure off but Thailand’s exposure to tariffs means it would stay vulnerable, according to Alvin Tan, a strategist at RBC Capital Markets in Singapore. Dollar/baht is likely to trade within a broad range of 32-37 this year, he also said.