USD/VND exchange rate fever at the beginning of the year, will it last?

The central exchange rate between Vietnamese Dong (VND) and US Dollar (USD) today was announced by the State Bank at 24,017 VND/USD, unchanged from yesterday's closing price.

With the +/- 5% margin currently applied, the ceiling rate applied by banks is 25,217 VND/USD and the floor rate is 22,816 VND/USD.

Today, the USD price on the free market remains above 25,000 VND after decreasing by 100 VND. Accordingly, the USD price decreased to 25,280 VND for buying and 25,350 VND for selling.

The USD/VND exchange rate on the free market has increased sharply since the beginning of the year. In previous years, the first quarter was often a period of abundant foreign currency supply and the USD/VND exchange rate was “quiet”.

In the March 2024 macro-currency report of Wirsearch, it was pointed out that the exchange rate in the free market increased by 1.72%, exceeding the selling rate of the State Bank, while the exchange rate at commercial banks also increased by 0.9%.

According to research by Phu Hung Securities Company (PHS), the sharp increase in USD and VND exchange rate fluctuations within just 1 week after the Lunar New Year 2024 was due to many reasons such as the US Federal Reserve (Fed) is not expected to reduce interest rates as early and strongly as predicted earlier this year.

Imports of input materials recovered rapidly. In January alone, the total import value reached nearly 31 billion USD, reaching the highest level since July 2022. At the same time, the total domestic import value was more than 11 billion USD - 15% higher than the average last year.

In addition, the early-year USD payment cycle of businesses leads to increased foreign currency demand as businesses need to pay foreign loans and transfer profits back to their home countries.

Wiresearch said that there is pressure when the DXY index has a short-term bullish outlook due to the recently released US economic data and the stability of the 10-year US bond yield; secondly, because the US economic outlook is not really clear.

Sharing at the recent program "Macroeconomic and monetary highlights of the first quarter", Mr. Tran Ngoc Bau - CEO of Wigroup - commented that the current VND/USD exchange rate has exceeded the ceiling exchange rate set by the State Bank of Vietnam (SBV).

The high exchange rate makes the market very worried, but unlike previous times, this time the exchange rate pressure is not too great for the State Bank to intervene.

Mr. Bau explained that there were two factors that prompted the SBV to intervene: the exchange rate fluctuated too strongly compared to the target range and the official exchange rate was close to the SBV's offering rate. In this case, the SBV did not need to intervene by selling foreign exchange reserves or adjusting monetary policy.

"Only when the State Bank intervenes with the above tools will it directly affect the stock market, otherwise these fluctuations will not have much impact on the market" - Mr. Bau shared.

There are many hypotheses that the Fed may lower interest rates this year, although the answer is still open. VPS Securities' analysis team said that if the Fed lowers interest rates this year, the exchange rate between VND and USD may cool down.

In addition, the gold market may soon be regulated by the Government , ensuring adequate supply to the market. This helps reduce the difference and reduce pressure on the exchange rate.

VPS's analysis team said that exports have been accelerating, the export surplus is being maintained at a good level, FDI capital into Vietnam maintains stable growth thanks to remittances. At the same time, Vietnam's foreign exchange reserves are in a fairly good development stage, becoming a factor in balancing the USD/VND exchange rate.

Source