By
Tri Duc
Sun, July 21, 2024 | 8:05 am GMT+7
Vietnam’s exchange rate peaked at VND25,352 per $1 in Q2/2024 and can appreciate to VND25,280 and VND24,980 on average in Q3 and Q4 this year, respectively, says Shinhan Bank Vietnam.
In its forecast for the second half of this year, the South Korean invested bank said the exchange rate will continue to face pressure from the conflicts in the Middle East, the interest rate in the United States, and the lackluster economic performance of China.
It also noted that the recent depreciation of the Vietnamese dong was inevitable.
USD/VND exchange rate in Vietnam from 2018 and projections of Shinhan Bank Vietnam. Photo courtesy of Shinhan Bank Vietnam.
Vietnam’s advantages in this situation include a strong recovery of the manufacturing-processing sector with a focus on exports, as well as the State Bank of Vietnam’s readiness to sell gold and foreign reserves to support the market, according to a Shinhan Vietnam report.
It said the Vietnamese dong can appreciate when the U.S. Federal Reserve (Fed) changes its monetary policy, particularly by reducing interest rates later this year. Other supporting factors are likely to be improvements in foreign direct investment flow and increased public investments in the country.
In the medium- and long-term, as major economies cut their interest rates, the State Bank of Vietnam will have more room to reduce interest rates and support economic growth, Shinhan predicted.
Reviewing recent developments, it said the central bank of Vietnam has been cautious in decreasing interest rates amid depreciation of the local currency and inflation pressure. As a result, in the short term, the policy rate will continue to support the economy, a Shinhan Vietnam Bank report said.
Analysts with KB Securities Vietnam JSC (KBSV) earlier this month predicted the USD/VND exchange rate to remain under great pressure in the coming months, driven by rising demand for input material imports; the tendency to deposit USD overseas by exporting and foreign-invested enterprises; and the stubbornly high U.S. Dollar Index (DXY).
They reckon that upward pressure on the USD/VND rate is unlikely to ease until the middle of Q3/2024, when the Fed is poised to make the first interest rate cut in years.
