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The domestic USD exchange rate has been under pressure recently as the greenback has maintained a continuous upward trend following Donald Trump’s overwhelming victory in the US presidential election, with the Republican Party also gaining majorities in both the Senate and the House of Representatives, allowing Trump to easily push his agenda forward.
Trump’s policies on restricting illegal immigration and imposing new tariffs could boost growth and inflation, reducing the likelihood of Fed interest rate cuts and strengthening the USD. Additionally, the fact that Trump’s Republican Party controls both houses of Congress
In November 2024, Trump’s election victory pushed the DXY index to its highest level since November 2022. On November 22, the DXY index reached 107.5, an increase of about 3.4% compared to the end of the previous month.
According to Rong Viet Securities (VDSC), the expectations of fiscal stimulus and tighter immigration policies by the new administration, combined with higher interest rates in the US compared to other economies, and relatively high US protectionism, all provide strong reasons for a USD rally.
However, VDSC believes that the USD’s upward momentum will still face some obstacles, as the expected impact of US policies may be adjusted as the new administration gradually reveals more specific approaches to Trump’s campaign proposals, the response of central banks and governments of other countries to Trump 2.0, and less optimistic US economic prospects than expected.
VDSC assesses that the risk of the Trump administration imposing tariffs on Vietnam in 2025 is possible but is currently not part of the base case scenario. Therefore, the main theme for the Vietnamese currency market in the coming year will be the impact of higher yield differentials and capital flows back to the US.
Although Vietnam’s trade balance in goods has continuously expanded in recent years, the current account balance is not sustainable due to the tendency of expanding service sector deficits and increasing interest and investment profit payments. According to IMF estimates, Vietnam’s balance of payments surplus in 2024 is estimated at 3.0% of GDP, down from 5.8% in 2023 and expected to narrow further in 2025. Meanwhile, the buffer to cope with exchange rate pressure, foreign exchange reserves, has been significantly depleted in 2024 (estimated at $8-10 billion).
“This makes the exchange rate more volatile when there is pressure on foreign currency outflows. We believe that in addition to the continued strength of the USD, exchange rate management in 2025 will also depend on the seasonality of foreign currency supply and demand,” VDSC forecasts.
In a newly released report, KB Securities (KBSV) also stated that exchange rate risks are increasing due to the strengthening trend of the USD. Tariff measures on imports and fiscal support policies will bring back inflation risks, and the Fed may be more cautious about the path of cutting rates, while yields on US government bonds are rising. All these factors will reinforce the USD’s upward trend.
“In the short term, a stronger USD will increase the risk of depreciation for the VND. In addition, Vietnam’s foreign exchange reserves are at a low level of about $87 billion (nearly 3 months of imports), which will cause difficulties for the State Bank in managing the exchange rate,” KBSV said.
Similarly, ACB Securities (ACBS) believes that in the short term, the VND is likely to face greater depreciation pressure as Trump wins the election and implements his economic policies, as these mainly increase the value of the USD.
“This will leave no room for Vietnam’s monetary policy, thus negatively affecting the economy in general and the profitability of the banking sector in particular,” ACBS forecast.
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