BENGALURU: The Thai baht weakened on Friday and was set for its biggest weekly drop in four months as political uncertainty weighed on already fragile sentiment, while other regional currencies were also headed for weekly losses on Middle East tensions.
The baht fell 0.4% in its fifth session of losses and was on course to log its worst week since late February.
Prime Minister Paetongtarn Shinawatra was facing the prospect of losing her government’s majority as the United Thai Nation party, a vital coalition partner, looked set to demand her resignation after just 10 months in power.
This follows the Bhumjaithai Party’s withdrawal from the alliance after a leaked phone call with Cambodia’s former leader.
The political instability comes against the backdrop of persistent bond outflows driven by low returns and vulnerability to US trade tariffs and the government’s call for a weaker baht to support exports and tourism.
“At a time when unprecedented geoeconomic challenges are confronting Thailand, the lack of political leadership/certainty is an unwelcome handicap for trade/diplomacy and wider geopolitical leverage,” said Vishnu Varathan, head of macro research for Asia excluding Japan at Mizuho Bank, in a note.
“The BoT (Bank of Thailand) arguably needs to compensate, hastening another 50-75bp of rate cuts,” he said, adding that the optimal policy mix for the central bank would be to cut rates while stabilizing the baht.
Thai stocks rose 0.3%. Poon Panichpibool, markets strategist at Krung Thai Bank, attributed the rise to a combination of technical rebound and some investors buying stocks on a dip after Thursday’s 2.4% fall.
Other regional currencies inched up on the day but were set for weekly losses as investors weighed the possibility of US involvement in the Israel-Iran conflict.
The Indonesian rupiah was on course for its worst weekly performance since early April, and the Philippine peso was poised for its biggest weekly drop since October.
The South Korean won rose 0.8% on Friday but was set for its second consecutive weekly fall.
Taiwan’s dollar added 0.4%, a day after the country’s central bank kept its policy rate unchanged and signalled there was no need for a rate cut this year.
Meanwhile, the Hong Kong dollar hit the weak end of its trading band for the first time in two years.
