USD/THB: Thai baht wavers as Bank of Thailand delivers final hike

The USD/THB exchange rate retreated slightly on Wednesday as investors reacted to the latest interest rate decision by Thailand’s central bank. The pair retreated to a low of 34.25, a few points below Monday’s high of 34.42.

Thailand rate hike

The Bank of Thailand concluded its meeting on Wednesday and decided to hike interest rates by 25 basis points. It pushed rates from 2.0% to 2.25% as the economic recovery continued. In a statement, the central bank said that inflation continued falling and is approaching the bank’s target range.

The most recent economic numbers showed that the country’s consumer price index (CPI) dropped to 2.96% in June, the lowesr level in more than 20 months. The country also slashed its full-year inflation forecast to between 1% and 2%, down from the previous 1.7% and 2.7%.

In its statement, Thailand’s central bank warned that the country’s economy was slowing as internal and external demand slowed. However, the bank expects that the economyto recover gradually because of tourism and private consumption. The statement added:

“Upside inflationary risks stem from higher food prices amid a more severe El Nino episode which could accelerate cost pass-through in the context of continuing economic expansion.”

Most analysts believe that the Bank of Thai has now finished hiking interest rates. These analysts include those at HSBC and OCBC.

The USD/THB pair also retreated after the decision by Fitch Ratings to slash America’s credit rating, as I wrote here. In its statement, the agency warned that the America’s government debt and deficits were getting out of hand. It sees budget deficits surging to 6.5% of GDP in 2025.

In all, estimates show that America’s debt will surge to over $50 trillion in the next few years. That is a huge number for a country that brings in less than $5 trillion in federal tax revenue every year.

USD/THB technical analysis

USDTHB chart by TradingView

The USD to Thai baht exchange rate has moved sideways in the past few days. On the daily chart, the pair is hovering slightly above the ascending trendline that connects the lowest levels since January this year.

At the same time, the pair has moved slightly below the 25-day and 50-day exponential moving averages. Further, the MACD has dropped below the neutral point while the price is below the important resistance at 35.38, the highest point in March.

Therefore, the outlook for the USD/THB pair is neutral for now. The first scenario is where it breaks below the ascending trendline and moves to 34. The alternative one is where the pair bounces back and retests the resistance point at 35.38.