USD/THB eased to 32.55 on portfolio inflows, but Thailand’s external position deteriorated as the April trade deficit widened to a record USD10.0bn. That compared with USD3.3bn in March and exceeded the Bloomberg consensus of USD5.3bn, extending the shortfall to a seventh straight month. Officials said the Baht could remain under pressure if strong imports continue to push the deficit wider.
The government kept its central projection for exports to rise 3% this year, while outlining a worst-case outcome of -3% and a best-case scenario of +8%. Even with stronger AI-related export growth, the Baht is down 3.2% against the US Dollar year-to-date. It has also weakened since mid-April, in line with higher global oil prices and firm demand for USD.
Thai Baht Faces Mounting Pressure from Trade Deficit and Rate Differentials
Based on the recent data, we see the Thai Baht facing significant headwinds against the US Dollar. Thailand’s April trade deficit hit a record USD10.0 billion, which was nearly double the market consensus and marks the seventh consecutive monthly deficit. Authorities have now warned that the Baht will remain under pressure if this trend of strong imports continues.
The Baht has already weakened to around 36.80 against the dollar, putting it down over 5% for the year to date. This pressure is intensified by the wide interest rate differential between the US Federal Reserve, holding rates firm around 4.75%, and the Bank of Thailand at 2.50%. This fundamental gap continues to make holding US Dollars more attractive than holding Baht.
Strategy Outlook: Positioning for Further Baht Weakness
For the coming weeks, we believe the path of least resistance for the USD/THB pair is upward. We are looking at buying USD/THB call options with expirations in late June and July to capitalize on further Baht weakness. This strategy provides upside exposure while defining our maximum risk to the premium paid.
Tourist arrivals, a key source of foreign currency, are still tracking about 15% below their 2019 pre-pandemic peak, which is not enough to offset the country’s high import bill. This continues a multi-year trend of THB weakness that began during the post-pandemic recovery. Therefore, constructing call spreads on USD/THB could also be a viable, lower-cost strategy to profit from a gradual rise in the exchange rate.
