A NEW low for the Thai baht looms and not even a rate hike by the central bank is likely to halt its slide.

The Asian currency weakened for its third straight week against the dollar, closing at 34.77 on Friday (May 26) and heading towards February’s year-to-date low of 35.39. Hurdles to the Move Forward party coalition are growing, increasing political uncertainty over who will form the next government which is weighing on the baht by spurring foreign funds to sell both the nation’s equities and bonds.

“The biggest concern for the market right now is still whether the opposition-led coalition will get enough support from the Senate, which has the power to select the PM,” said Jeffrey Zhang, emerging markets strategist at Credit Agricole CIB Hong Kong Branch.

Against this backdrop, the Bank of Thailand is scheduled to release its interest rate decision on May 31. The central bank is forecast to raise rates by 25 basis point to 2 per cent after governor Sethaput Suthiwartnarueput said earlier this month that it will stick to its gradual and measured monetary tightening to curb inflation.

“I don’t think the Bank of Thailand’s decision will have much bearing on the baht, given that low policy rates relative to regional peers means that the carry consideration is negligible,” said Galvin Chia, emerging markets FX strategist at Natwest Markets in Singapore.

Further risks lie to the north in China with some analysts, such as Goldman Sachs Group, forecasting more gloom for the yuan. Investors will be monitoring China’s purchasing manager index data, due the same day as Bank of Thailand’s rate decision, to see if the nation’s economic rebound this year remains underwhelming.

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“China is Thailand’s largest trading partner and was its largest source of inbound tourists,” added Chia. “As a result, the baht has tended to be quite sensitive to large moves in the yuan.”

In the US, traders are raising their expectations on the Federal Reserve’s terminal rate, pushing up the greenback. Chia sees the dollar-baht testing its year-to-date highs in the coming weeks if recent dollar strength continues or the yuan extends its slide lower. BLOOMBERG