Thai baht falls to new 5-year low as dollar strength adds to rate cut impact

The Thai baht has fallen to a new five-year low on Monday as the authorities' initiative to weaken the currency last week continued to impact while broad dollar strength aided.

The Thai central bank on 29 April surprisingly cut the main interest rate by 25 basis points, its second cut in this year, taking it to 1.5% from 2% last year.

The government relaxed capital controls the next day allowing citizens to hold more foreign currency and buy overseas assets for a higher value.

The baht broke through the 33.15/dollar support and weakened to 33.60 over a week. Monday's dollar strength pushed the USD/PHB pair to as high as 33.69, its highest since September 2009.

So far in May, the baht has weakened 1.9% against the dollar, adding to the 2% decline over the March-April period.

The USD index has risen to a six-day high of 95.26 on Monday from the previous close of 94.79, moving further off the three-month low of 93.88 touched on 6 May.

The China rate cut that followed lower than expected CPI numbers over the weekend too failed to boost risk appetite on Monday, making the baht selloff easier.

Thai exporters' stock prices, however, have rallied after the official moves, helped by a weaker currency.

Big picture technical analysis shows that the USD/THB pair has upside room up to 34.50 although 34.0 will be a strong resistance on the way.

Immediate support for the pair is 33.15 but a stronger one would be 32.50, endorsed by the 14-day EMA (exponential moving average), which has been consistently supporting the pair since mid-2013. It also lies on the 50% Fibonacci retracement of the 2009-2013 selloff.

A break of that will open doors to 31.50, the level comes on the 38.2% Fibonacci and 50-day SMA (simple moving average). It will be a very strong support as a break of that will weaken the upward trend since mid-2013 expose levels like 30.88 and lower.