The Vietnamese dong or VND is expected to strengthen slightly against the U.S. dollar in the latter half of this year, along with the country's economic recovery and the anticipated weakening of the greenback, according to Singapore-based bank UOB.
The USD was trading at a new high of VND24,700 a dollar in late February thanks to broad USD strength against its Asian peers.
After rising sharply at the beginning of the month, the greenback has cooled down in recent days. On Monday, the Vietnamese central bank lowered its mid-point USD/VND rate by VND24 from last weekend to 23,972. Commercial banks all reduced USD prices, with Vietcombank quoting VND24,420-24,790 for bids and asks, respectively, down VND50 from Saturday.
Bucking the trend, gold shops in the country raised their quotes for the dollar by VND30-150 to VND25,500-25,700, a record high.
Despite the near-term weakness in the VND, expectations of a stronger GDP growth in Vietnam, forecast at 6% this year versus 5.05% in 2023, and recovery momentum in the external trade and manufacturing sectors are positive factors that may help to stabilize the VND, UOB analysts said in a note on Monday.
In addition, a subsequent recovery in the Chinese yuan, which the VND tracks, together with renewed USD weakness ahead of the Fed rate cut in June will bring forth a modest VND recovery, they added.
They updated USD/VND forecasts at 24,400 in the second quarter of this year, 24,200 in Q3, 24,000 in Q4 and 23,800 in Q1/2025, up VND400-500 from their forecasts made in December 2023.
Hanoi-based Vietcombank Securities (VCBS) said in a Monday note that consistently low VND interest rates are exerting pressure on the USD/VND while the U.S. Dollar Index (DXY) remains high.
“Devaluation pressure on the VND will persist. The USD/VND rate will depend greatly on forex supply at certain moments, in relation with direct and indirect investment and inbound remittances,” VCBS analysts added, retaining their forecast of a 3% devaluation of the VND this year.
Recovery momentum intact in 2024
Vietnam ended 2023 in a positive note, as economic growth accelerated to 6.72% year-on-year in Q4/2023, from 5.33% in Q3/2023 and 4.14% in Q2/2023, driven by a rebound in manufacturing while both services and agricultural sectors provided further support.
The underlying drivers were a recovery in external trade towards the tail end of 2023 as well as policy support measures including the central bank’s rate cuts and credit policy which helped tide the country over a challenging year.
Vietnam’s purchasing managers’ index (PMI) showed that both January and February 2024 prints were above 50, compared to the average 49.3 reading in Jan-Feb 2023.
“These data suggest that the overall momentum in the external trade and manufacturing sectors is showing positive signs and we expect the pace to sustain especially in the second half of 2024 when the recovery in the semiconductor sector is more entrenched and global central banks embark on a more accommodative policy stance,” UOB analysts said.
While risks of external events continue to weigh on global economic prospects, Vietnam’s outlook is bolstered by the recovery in the semiconductor cycle, stable growth in China and the region, and supply chain shifts that favor Vietnam and ASEAN.
The analysts maintain their growth forecast for Vietnam at 6% for 2024, which is within the official 6-6.5% target. For Q1, they expect GDP growth to ease to 5.5% year-on-year, due to the Lunar New Year holidays effect (vs. 3.3% in Q1/2023).
They anticipate inflation pressures to remain on the upside, with a forecast of the headline CPI to stay elevated at 3.8% in 2024, from 3.25% in 2023. With the pace of economic activities on the mend, the possibility of further rate cuts has diminished. As such, the UOB analysts believe the State Bank of Vietnam will keep the refinancing rate at the current level of 4.5%.