Thailand's so far smooth election and landslide victory for telecom tycoon Thaksin Shinawatra gave the baht a shot in the arm as political uncertainty reduced considerably.
But analysts reckon the post-election surge will be short-lived as investors are unlikely to fall over themselves to bet on Thai assets given the less than encouraging global economic outlook.
Also, the political picture remains murky in Thailand despite the clear election result with Thaksin facing a ruling by the Constitutional Court whether to uphold charges he had failed to declare some of his wealth before and after he was a minister in late 1990s.
According to the country's political etiquette, Thaksin should be the next prime minister. However, if he is found guilty by the court, he will be booted out of office and banned from politics for five years.
"The immediate reaction on the baht is the case that much of what happened had been so well seen and well discounted. The market had been pretty long on dollars into the elections, and this is the classic case of buying on rumours, selling on fact," said David Simmonds, currency strategist at Citibank.
"But clearly, some major uncertainties remain. Therefore, one should be fairly suspicious about any strongly sustained rally in Thai assets in the near-term, not least given the unfavourable external headwind blowing as well," he said.
Despite today's strong gains in the baht, Simmonds, like a number of analysts here, kept his near-term baht forecast unchanged. Citibank sees the baht sliding to 44.50-45.00 in three months.
LONG DOLLARS TRIMMED
Telecom tycoon Thaksin's Thai Rak Thai Party scored a runaway victory in the January 6 elections despite his indictment by the government's anti-graft agency of falsely declaring his assets in 1997.
His party may even have secured the country's first ever absolute majority. Unofficial results gave his party an unprecedented 255 of the 500 seats in the lower house of parliament, sweeping almost all areas of the country.
Moreover, there were lower-than-anticipated re-counts and re-runs that would be necessary in case of electoral fraud, stoking hopes that a new government with strong public mandate will be formed soon.
The expectations prompted some offshore and onshore interbank players to trim their long dollar positions, causing the baht to surge more than one percent to 42.70 at 0320 GMT from 43.35 late on Friday.
"Players in Singapore, Hong Kong and Bangkok are selling the dollar in both spot and forward markets after the election results proved more decisive than we previously expected," said a dealer at a U.S. bank in Singapore.
"I would say 42.50-43.00 is the immediate range."
"I believe the worst has been discounted. In the immediate term, there should be more upside for Thai assets than the downside. But again, uncertainty remains and there is a need to reassess the situation in the next few months," said Supavud Saicheua, head of Thailand's economics at Merrill Lynch.
"In our view, the 18 million votes for Thai Rak Thai suggests the Thai people did not consider Thaksin's misdeclaration of his assets a serious offence. But whether the court would factor that into its consideration is yet to be seen," he said.
There are also those who are worried about Thai Rak Thai's policy platform which promised a range of measures to stimulate the Thai economy, including suspending interest payments for farmers for three years and cutting corporate tax to 25 percent from 30 percent over five years.
"I have talked to a number of economists and investors and they seem to share concerns about Thai Rak Thai's expansionary policy," said Syetarn Hansakul, economist at WestLB in Singapore.
"They doubt if the party will be able to carry out its promises without compromising its fiscal disciplines. And that doubt should weigh on the baht in the longer term," she said.