Shinhan Bank predicts stronger VND by year-end

The U.S. dollar is likely to rise against the Vietnamese dong early in the second half of the year and fall back towards the year-end, according to Shinhan Bank.

The dollar is expected to rise in the current period due to liquidity reduction in major advanced countries and inflation worries, but fall back towards the end of the year to around VND23,000 on improvements in domestic demand and tourism as well as FDI inflows into Vietnam, said the Korean bank’s senior economist Lee Young Hwa.

In the bank's “Vietnam’s Economy & Foreign Exchange Market Outlook in 2022 H2” report released Tuesday, the economist noted that the country’s efforts to attract FDI are expected to result in inflow increases, while the U.S. Federal Reserve is slowing down the pace of interest rate hikes.

On Vietnam’s economic outlook in the second half, she said: “Although a rapid recovery is projected, mainly in the domestic and tourism sectors, overall growth is expected to be slow because external demand will contract as a result of the global economic slowdown.”

As China is one of Vietnam's largest trading partners and import markets, the USD/VND exchange rate tends to show a synchronized trend with yuan, Lee added.

“Therefore, it is necessary to pay attention to the relationship between the decrease in export and production and the upward trend of the yuan caused by the slowdown in China.”

According to broker Viet Dragon Securities, the State Bank of Vietnam (SBV) has so far this year sold about $12-13 billion to stabilize the domestic forex market - about 11% of the country’s foreign exchange reserves.

Total reserves, currently at more than $100 billion, equal 3.1 months of the country’s imports, are forecast to keep rising.

Unlike Shinhan Bank economist Lee, the broker forecast the domestic exchange rate might come under higher pressure at the year-end.

Pham Chi Quang, deputy head of the SBV’s currency policy department, had said in June that with current foreign currency reserves of more than $100 billion, the central bank will continue to sell U.S. dollars to stabilize the market.