USD/VND exchange rate fell sharply in December
In the last trading session of last week, the USD/VND exchange rate suddenly dropped sharply. The downward trend was maintained in the first session of the new week. However, the rate of decrease at banks has a large difference.
Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) traded USD at: 24,050 VND/USD - 24,350 VND/USD, down 65 VND/USD in both buying and selling compared to December 22 and down 70 VND/USD compared to November 30.
At Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), the USD/VND exchange rate is currently trading at: 24,053 VND/USD – 24,393 VND/USD, down 57 VND/USD compared to the end of last week. Compared to the end of November, the USD at VietinBank decreased by 92 VND/USD.
In some other units, the rate of decline of the USD is much slower.
The USD/VND exchange rate increased sharply in the first half of 2023, but then, especially in the last days of December, the USD/VND exchange rate cooled down. The USD is expected to continue to decrease in 2024. Illustration photo
The USD/VND exchange rate at the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) is listed at: 24,040 VND/USD - 24,380 VND/USD, down 20 VND/USD compared to the end of last week and down 50 VND/USD compared to the end of last month.
The USD/VND exchange rate at Vietnam Technological and Commercial Joint Stock Bank (Techcombank) was exchanged at: 24,068 VND/USD - 24,378 VND/USD, down 7 VND/USD for buying, down 17 VND/USD for selling compared to the end of last week. After nearly 1 month of trading, the US dollar at Techcombank decreased 52 VND/USD for buying, down 49 VND/USD for selling.
Still up 2.7% after nearly a year
The USD/VND exchange rate fell sharply in December, but overall over the past year, the USD has still increased significantly.
MB Securities Company (MBS) commented on the entire process of exchange rate fluctuations in 2023. Accordingly, after a period of stability in the first half of 2023, exchange rate pressure gradually increased from July 2023, mainly due to the strengthening of the USD.
In the context of the US Federal Reserve (FED) continuously raising interest rates with a total increase of 150 basis points in 2023, Central Banks of Asian countries, represented by China, Japan, etc., continuously cut interest rates to support growth.
According to MBS, investors concerned about the growing polarization between countries' monetary policies have turned their attention to the USD, causing the dollar strength index (DXY) to skyrocket, reaching 107 points at one point in October 2023.
As Vietnam shifts to a flexible monetary policy to support growth from the end of the first quarter of 2023, the interest rate gap between VND and USD will widen, leading to the interbank exchange rate, central rate and free exchange rate all exceeding 24,000 VND.
However, exchange rate pressure gradually cooled in December when the FED confirmed that interest rates may have peaked and signaled cuts in 2024. As of mid-December 2023, the interbank VND/USD exchange rate had increased by about 3% compared to the beginning of the year and decreased by 1.4% compared to the peak. However, compared to some other currencies in the region, the VND's performance remained quite stable in 2023.
MBS assessed that the State Bank has flexibly loosened monetary policy since March 2023 to support the economy to overcome difficulties; however, due to the Fed raising interest rates, this has put great pressure on Vietnam's USD/VND exchange rate during the period (up 1.7% in August; up 0.9% in September; up 1.1% in October).
With the prospect of the Fed cutting interest rates in the second half of 2024, along with the sharp decline of the DXY index in November (down 3%), the pressure on the USD/VND exchange rate has decreased significantly in November (down 1.2%).
Overall, since the beginning of the year, the dong has depreciated by 2.7%.
Expected to decrease in 2024
MBS Securities commented that moving into 2024, in the context of improving US inflation means an increased likelihood that the Fed will start cutting interest rates sooner than expected, which will limit the rise of the US dollar (currently the USD Index has fallen 3.5% from its 2023 peak).
Global monetary policy has begun to loosen, the US dollar is likely to depreciate across the board and will reduce pressure on domestic exchange rates.
“We believe that the exchange rate in 2024 will fluctuate in the range of 23,800 - 24,300 VND/USD and will continue to be supported by factors including a trade surplus, but it may not be as good as now when import and export recovers, FDI disbursement is positive, remittances are stable (IMF forecasts remittances in 2024 to reach more than 110 billion USD), international tourism will recover strongly, ...”, MBS forecasts about the USD in 2024. If this forecast is correct, the USD/VND exchange rate will decrease by about 100 VND/USD.
Meanwhile, Mirae Asset Securities predicts that overall, combined with inflation cooling significantly and the labor market starting to cool, hopes that the Fed can soon end the current monetary policy tightening cycle are increasing, with the possibility of two interest rate cuts in the second half of 2024.
“We also expect the strength of the USD (as measured by the DXY index) to cool further after a sharp 3% decline month-on-month in November,” Mirae Asset expects.
Along with many other factors such as high foreign exchange reserves and large FDI, Mirae Asset expects the overnight exchange rate gap between USD and VND to narrow, helping to reduce selling pressure from foreign investors.
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