The VND is forecasted to not face much depreciation pressure in Q4/2024 as the FED has started a cycle of interest rate cuts and the domestic foreign currency supply is abundant.
In the past two months, the domestic USD/VND exchange rate has fallen sharply as the greenback plunged in the international market and the domestic foreign currency supply became more abundant. In the interbank market, the USD/VND exchange rate ended September at VND24,560, down nearly VND700 compared to the end of July, equivalent to a decrease of 2.7%.
The USD exchange rate listed at domestic banks has also been continuously adjusted downward. At the end of Q3, the USD selling price listed at banks was commonly around 24,750 - 24,800 VND/USD, while the buying price was around 24,350 - 24,400 VND/USD. Specifically, Vietcombank, the bank with the largest foreign currency trading scale in the system, currently lists the exchange rate at 24,380 - 24,750 VND/USD. Since the beginning of August, the USD price at this bank has decreased by about 670 VND, equivalent to a decrease of 2.6%. Thereby, narrowing the depreciation of VND against USD YTD to 1.4% from the peak of 4.3% recorded in June and July.
In the free market, the USD price is being traded at foreign currency purchasing points at 25,020 VND/USD for buying and 25,120 VND/USD for selling. Compared to the peak of nearly 26,000 VND set at the end of June, the free USD price is currently about 900 VND lower, equivalent to a decrease of 3.5%.
In a newly published analysis report, MB Securities (MBS) forecasts that the USD/VND exchange rate will cool down and fluctuate in the range of 24,700 - 24,900 VND/USD in Q4/2024 thanks to positive factors such as: Positive trade surplus (about 19.1 billion USD in the first 8 months of the year); FDI Capital inflows (14.15 billion USD, +8% over the same period in 2023) and strong tourism recovery (+45.8%).
“The stability of the macro environment is likely to be maintained and further improved, which will be the basis for stabilizing the exchange rate in 2024,” MBS commented.
From now until the end of the year, Dragon Capital Securities (VDSC) also forecasts that the VND will not have significant depreciation pressure because the FED has started a cycle of interest rate cuts. However, policy makers may not want the VND to appreciate too strongly and quickly when exports are still the mainstay of economic growth.
“Currently, we believe that the pressure on exchange rates is no longer too great, so the State Bank can focus on the goal of supporting credit growth and stimulating domestic investment and consumption,” said VDSC’s report.
In the recently released report “Economic Outlook Q3/2024”, UOB Bank stated that VND recorded the largest quarterly increase since 1993, recovering 3.2% to 24,630 VND/USD.
According to UOB, external pressures from the strength of the USD are starting to ease as the Fed begins its expected easing cycle, while domestic factors point to further stability in the VND. Despite the impact of the storm, Vietnam’s forecasted strong growth momentum, driven by both manufacturing and trade activities, is also likely to extend into 2025. Expectations of a stable monetary policy from the SBV with a focus on boosting credit growth are also supportive for the VND. However, further appreciation of the VND from here is unlikely to occur at the same pace as in Q3/2024.
Overall, UOB forecasts the USD/VND exchange rate to fluctuate around VND24,500/USD in 4Q24; VND24,300/USD in 1Q25; VND24,100/USD in 2Q25 and VND23,900/USD in 3Q25. At the same time, UOB still expects the SBV to maintain its key policy interest rate for the remainder of 2024, while paying attention to inflation risks. Accordingly, UOB expects the SBV to maintain the Capital rate at the current level of 4.50% while focusing on boosting credit growth and other support measures.
However, UOB said the US Federal Reserve's announcement of a 50 basis point interest rate cut at its September meeting could increase the likelihood (and pressure) on the SBV to consider a similar policy easing.
Source: Market Pulse
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