4 Factors Putting Pressure on USD/VND Exchange Rate in Q1/2024

With the currency exchange rate fluctuating in the first few weeks of 2024, Mr. Ngo Dang Khoa, Director of Foreign Exchange, Capital Markets and Securities Services at HSBC Vietnam, highlights four factors putting pressure on the USD/VND exchange rate in Q1/2024...


… which are: the difference in monetary policy between the Fed and the State Bank may still be wide; the USD is expected to maintain its strength; VND liquidity in the interbank market continues to maintain a good level; trade surplus and FDI may remain high.

Reporter: The first weeks of 2024 witnessed an increase in the USD/VND exchange rate. From the perspective of forex experts, how do you view the increasing trend of the USD in the context of abundant foreign currency reserves?

Mr. Ngo Dang Khoa: The USD has experienced a record decline in the fourth quarter of 2023 following expectations that the U.S. Federal Open Market Committee (FOMC), the policy-making body of the U.S. Federal Reserve (Fed), would soon cut interest rates early in 2024. However, recent positive signals from the labor market and the U.S. economy, along with statements from FOMC members about continuing to act based on actual data, have prompted market participants to gradually reduce their expectations of an early rate cut by the FOMC.

Mr. Ngo Dang Khoa, Head of Foreign Exchange, Capital Markets and Securities Services, HSBC Vietnam

Therefore, U.S. government bond yields have rebounded slightly, helping the greenback regain some strength in the international market. This is one of the fundamental reasons why Asian currencies, including the Vietnamese dong, have weakened against the USD.

In addition, with the interest rate differential still high and the VND liquidity relatively surplus even in the period before the Lunar New Year, the USD/VND exchange rate has quickly increased in the early weeks of 2024.

Reporter: How has recent market developments affected HSBC’s forecasts for the USD exchange rate in Q1/2024 and throughout 2024?

Mr. Ngo Dang Khoa: We expect pressure for the USD/VND exchange rate to increase in Q1/2024 due to 4 main reasons:

Firstly, the difference in monetary policy between the Fed and the State Bank of Vietnam (SBV) may continue to be wide. Vietnam’s current policy priority is focused on supporting growth, while in contrast, the U.S. has better-than-expected growth figures and a slowly cooling core inflation, which has led to the Fed maintaining its tight monetary policy.

Secondly, VND liquidity in the interbank market may continue to maintain a good level as there have been no significant changes in credit growth or disbursement rates for public investment, at least in Q1 this year.

Thirdly, while Vietnam’s trade surplus and FDI inflows may remain high, some global and regional political fluctuations may have relatively negative impacts on the VND.

Fourthly, the USD is generally expected to maintain its strength in the early months of 2024, while the Chinese yuan (CNY) continues to weaken in the context of China’s slower-than-expected economic recovery.

However, the exchange rate outlook for the entire year of 2024, particularly in the second half of the year, is expected to improve as the aforementioned factors reverse, especially when the USD reaches its peak and domestic economy and credit gradually recover.

Reporter: After 4 consecutive interest rate cuts by the State Bank, the VND interest rate level has now fallen quite low. What are your predictions for interest rates in the near future?

Mr. Ngo Dang Khoa: We believe that the Vietnamese economy is still continuing its recovery trend, with a forecasted growth rate of 6% in 2024. FDI inflows continue to be directed towards manufacturing and exports, benefiting from the global economic recovery, and will be the main factors that help accelerate the pace of economic recovery.

In terms of inflation, Vietnam’s CPI index was well controlled in 2023, significantly below the average target of 4.5%. We expect inflation to remain stable in 2024, with a forecast of 3.4%, much lower than the target of 4-4.5%.

However, inflation risks from energy and food still exist, especially in the context of Vietnam’s high sensitivity to these commodities, as reflected by their relatively high weighting in the inflation basket. Nevertheless, we expect the State Bank to maintain its policy interest rate at 4.5% until the end of 2024.

Reporter: Thank you very much!

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