On 25th February, the USD exchange rate on the free market continued to rise by about 50-70 dong compared to yesterday. Specifically, the buying rate of USD is currently around 25,200-25,220 dong, and the selling rate is around 25,290-25,300 dong. So, in this week (19th-25th February), the unofficial USD exchange rate has increased by about 200-250 dong.
According to a recent analysis report, KB Securities Vietnam (KBSV) believes that the pressure on the exchange rate is still present but not a major concern.
Specifically, the USD/VND exchange rate has fluctuated in the range of 24,200 – 24,600 at commercial banks and has remained high since January 2023 in the context of: 1) DXY index measuring the strength of the USD rising back to the 104 range due to hot inflation data – pushing back market interest rate cut predictions; and 2) The interest rate difference between USD and VND is still negative, stimulating carry trade activities (investors use low-interest currencies to buy high-interest currencies to profit from interest rate differentials).
According to KBSV, the USD exchange rate no longer follows the parallel rate since December 2023.
The interest rate difference between USD and VND will make buying and holding USD more attractive, stimulating carry trade activities. Specifically, the interest rate difference for 1-month, 3-month, and 6-month terms is -4.44%, -2.26%, and -1.83% respectively.
Considering domestic factors, the domestic exchange rate is predicted to continue to be well-supported by abundant sources of foreign capital from FDI and remittances. In addition, the State Bank of Vietnam (SBV) believes it will continue to maintain loose monetary policy, accepting moderate exchange rate increases and will not intervene if there are no extraordinary fluctuations due to controlled inflation, while the economy needs continued support for recovery. Therefore, the interest rate difference between USD and VND and the risk of a higher DXY index will still be two pressure factors on the exchange rate, especially when political risks have not cooled down. KBSV predicts that the exchange rate will increase by 1.5% this year, reaching around 24,600 USD/VND.
