The Greenback’s Bank and Free-Market Rates: A Fresh Perspective

On August 2, the State Bank of Vietnam set the daily reference exchange rate at 24,242 VND/USD, a slight decrease from the previous day. However, over the past week, the reference rate has dropped by more than 20 VND, considered a significant decline.

At commercial banks, Vietcombank set its buying and selling rates at 24,060 VND/USD and 25,400 VND/USD, respectively, a decrease of 10 VND from the previous day. Eximbank offered USD at 25,050 VND/USD for buying and 25,390 VND/USD for selling.

Compared to a week earlier, USD rates at these banks have dropped by 50-70 VND. Moreover, commercial banks’ USD rates have cooled down by over 1.5% compared to their peak in June.

In the unofficial market, some foreign exchange shops quoted USD rates at around 25,600 VND/USD for buying and 25,682 VND/USD for selling, remaining stable in recent days. The unofficial USD rate has also retreated from its previous high of over 26,000 VND.

The exchange rate easing comes as the US Dollar Index (DXY) weakens in the international market. Currently, the DXY stands at 104.135, a nearly 2% drop from its April peak.

In its July currency market report, MBS Securities Company attributed the USD’s decline to a series of positive US inflation data releases. The market now expects a 90% likelihood that the Federal Reserve (Fed) will cut interest rates by 0.25 percentage points to 5.00-5.25% in September.

In the domestic market, the weakening of the DXY, coupled with the State Bank of Vietnam’s effective intervention through foreign exchange sales, has eased pressure on the USD/VND exchange rate in July 2024.

MBS experts suggested that the State Bank of Vietnam’s maintenance of high interbank interest rates also contributed to narrowing the interest rate gap between the USD and the VND, thereby supporting the VND’s depreciation.

“Exchange rate pressure will ease, and the rate is expected to fluctuate within the range of 25,100 – 25,300 VND/USD in the fourth quarter, thanks to a positive trade surplus, rising FDI inflows, and a strong recovery in tourism. The stability of the macro environment is likely to continue and further improve, forming a basis for exchange rate stability this year,” said Tran Khanh Hien, MBS’ Director of Analysis.

Looking ahead, UOB Group maintains its view that the Fed will cut interest rates twice, by 0.25 percentage points each in September and December. This will provide a favorable basis for other economies to consider cutting or refraining from raising policy rates, thereby reducing pressure on exchange rates in emerging markets.

Predicting the trend of the VND/USD exchange rate, Mr. Suan Teck Kin, Head of Research at UOB Group, said that a Fed rate cut would lead to a weaker USD. As a result, the VND could appreciate in the second half, along with the recovery of the Chinese yuan (CNY). He forecast the exchange rate to reach 25,000 in the fourth quarter of 2024.