USD price may reach VND26,400 in Q3, VND26,200 in Q4: UOB

Singaporean bank UOB's updated USD/VND projections are 26,400 in Q3/2025, 26,200 in Q4/2025, 26,000 in Q1/2026, and 25,800 in Q2/2026.

"We expect the currency to remain near the weaker end of its trading band against the USD through Q3/2025. However, by Q4/2025, the VND may begin to align with the broader recovery in Asian currencies as trade uncertainties ease," the bank stated in a release on Tuesday.

The State Bank of Vietnam (SBV), the central bank, set the daily reference exchange on Wednesday at VND25,119 per USD, up VND2 from Tuesday.

Given the current trading band of +/- 5%, the ceiling rate applicable for commercial banks during the day is VND26,375 per USD and the floor rate VND23,863.

The VND was the worst performing Asian currency in the first half of 2025, declining by 2.5% against the USD.

In contrast, regional peers benefitted from USD weakness, with gains ranging from 12% for the TWD (Taiwan) to 2.5% for the CNH (mainland China) during this period, the bank's data shows.

With overall and core inflation staying below the official target of 4.5% in the first half of 2025 and for most of 2024, this opens the possibility for the SBV to ease its policy stance, UOB added.

In addition, the strong performance of the overall economy may have eased pressures for policy easing. As such, UOB expects the central bank to keep its main policy rate steady for now, with the refinancing rate held at 4.5%.

Nonetheless, if domestic business and labor market conditions deteriorate sharply in the next 1-2 quarters, the bank said it sees the possibility of the SBV lowering the policy rate in a single step to the Covid-19 low of 4%, followed by another 50 basis point step to 3.5%, provided that the FX market is stable and the U.S. Fed moves ahead with rate cuts.

"For now, our base case remains no change to the SBV policy," it said.

GDP forecast revision

UOB said it sees the worst of the tariff tensions has past and are factoring in a modest pace of exports growth in 2025.

Vietnam and the U.S. have reached a reciprocal trade framework. On Truth Social last week, President Trump wrote that Vietnam will pay a 20% tariff on any and all goods sent into the United States, and a 40% tariff on any transshipping.

This is down significantly from the 46% in the original reciprocal tariff plan announced on April 2, 2025. In return, U.S. products into Vietnam will enjoy zero tariff.

Accordingly, the bank has revised up its forecast for Vietnam’s GDP growth in 2025 by 0.9% percentage points to 6.9%.

It pegs the growth projections for Q3/2025 and Q4/2025 of around 6.4%.

UOB has factored in a modest 5% gain of Vietnam’s exports to the U.S. (vs. 23% in 2024), up from its earlier projection of 20% decline after the “Liberation Day” announcement.

"The latest development on the trade negotiations with the U.S. appears promising for Vietnam," it said.

While the tariff rate may be declining to the new rate of 20% from the punishingly high 46% initially, the bank suggested that Vietnam and other exporters still need to brace for softening demand from US consumers and businesses who will be faced with higher-priced goods.

In the first half of 2025, Vietnam’s economy expanded 7.52%, its strongest performance in the first half based on data available since 2011.

Vietnam’s outsized performance in the first half was largely driven by frontloading of exports which surged 14% year-on-year, as sentiment recovered after U.S. President Trump stepped back from the April 2 “Liberation Day” tariff announcement and instead imposed a uniform 10% baseline on all trade partners for a 90-day period.

The Vietnamese Government is persistent with its 8% growth goal though disadvantages outweigh advantages, with a focus on solutions to respond to U.S. reciprocal tariffs, PM Pham Minh Chinh told a cabinet meeting on May 6.

Tariff recommendations

Currently there are no further details of the trade agreement and no official announcements from either government. One crucial point of the agreement is the precise classification or determination of what constitutes "transshipping" of goods.

In this case, the negotiations between the countries are likely to be centered on determining the “rule of origin” on percentage of domestic value added, for products to qualify for the “Made in Vietnam” label.

A more demanding percentage of local value added, e.g. 40% to 50% or even higher, could be detrimental to Vietnam’s nascent manufacturing sector which relies on cost-effective and readily available labour force rather than advanced manufacturing processes, UOB stressed.

Conversely, a more reasonable local content threshold of 20-30% or lower would be boon, allowing businesses to continue largely unaffected.

Vietnam is particularly vulnerable to trade frictions, due to the open nature of its economy: exports of goods and services accounts for 83% of Vietnam’s GDP, the second highest in ASEAN after Singapore (182%), as well as its outsized exposure to the U.S. market.

The U.S. accounted for 30% share of Vietnam's exports of $406 bn in 2024 and its largest market, followed by China (15%) and South Korea (6%).

The major products sold to the US in 2024 include electrical products HS85 ($41.7 billion), mobile phones and related HS84 ($28.8 billion), furniture HS94 ($13.2 billion), footwear HS64 ($8.8 billion), apparel knitted HS61 ($8.2 billion), and apparel nonknitted HS62 ($6.6 billion). Products from these sectors accounted for nearly 80% of the shipments that Vietnam sent to the U.S. in 2024.