MUFG said the Thai baht is exposed to an extended Middle East conflict and elevated oil prices, citing Thailand’s large net oil and gas trade deficit as a key vulnerability in its external accounts. The bank linked this exposure to a deterioration in the terms of trade, which would tend to intensify the impact of an energy price shock on the currency.
Domestic rate dynamics were also described as a constraint. MUFG pointed to relatively low local yields, while headline inflation rebounded towards 3% in May after a period of deflation in 2025, which it said reduces the baht’s real carry support. It concluded that, with weaker terms of trade and limited carry, THB remains at risk of further depreciation against the dollar, especially if regional tensions intensify.
Baht Sensitivity to Energy Prices and Regional Risks
We see the Thai Baht as particularly exposed to further downside pressure against the dollar. The country’s large energy deficit makes its external position highly sensitive to oil price shocks, especially with ongoing Middle East tensions. This vulnerability is compounded by relatively low domestic interest rates.
Brent crude has trended above $95 a barrel in recent weeks, directly impacting Thailand’s external position. The latest trade figures for May 2026 confirmed a current account deficit of $2.1 billion, mostly from soaring energy import costs. With the Bank of Thailand’s policy rate at 2.50% against the US Fed’s 5.25%, there is little incentive to hold the baht for its yield.
Positioning for Further Baht Weakness
Given this outlook, we believe positioning for further baht weakness is prudent in the coming weeks. Purchasing out-of-the-money USD call options (or THB put options) with expirations in late July or August 2026 offers a defined-risk way to capitalize on a potential move. This strategy allows for participation in the upside of the USD/THB pair while limiting the initial cash outlay.
For those with a higher risk tolerance, establishing a long position in USD/THB futures contracts can provide more direct and leveraged exposure. We note that implied volatility on the baht has started to tick upwards, reminiscent of the 2022 energy shock, suggesting the options market is beginning to price in larger price swings. This makes acting sooner rather than later a key consideration to manage entry costs.
