USD/VND exchange rate to stabilize soon amid Fed’s rate cut cycle: experts

The increase in the USD/VND exchange rates since early October is largely seasonal and is expected to ease soon as the U.S. Federal Reserve (Fed) is set further cut interest rates, according to experts.

After cooling down in August and September, the exchange rate has risen since the start of October. On Thursday, the State Bank of Vietnam (SBV) raised the reference exchange rate by VND10 from the previous day to VND24,260 per dollar, extending the gaining streak to nine days, with a total of VND99.

Since the beginning of October, the rate has risen by VND179 a dollar, or 0.74%.

Major banks Vietcombank, BIDV, and VietinBank listed the selling rate on Thursday at VND25,473 a dollar, the upper band of the SBV's reference rate, reflecting a 2.8% rise since early October and approaching the peak of VND25,500 set in April.

The exchange rate is rising amid the strengthening greenback. Since late September, the U.S. Dollar Index (DXY) has surged from 100 to 104.39, nearing the milestone of 106 established in July.

Tran Hoang Son, director of market strategy at VPBank Securities, attributed the recent sharp increase in the exchange rate to several factors. Firstly, the Fed may extend the timeline for interest rate cuts beyond expectations, resulting in a rise in the DXY. Additionally, recent U.S. economic data has shown much greater stability, bolstering the USD.

Secondly, in Vietnam, October typically sees a surge in demand for hard currency to increase imports for year-end export needs during the New Year and Christmas holidays, he added. Furthermore, USD demand has increased as Vietnam services its international debts.

In response to the rising exchange rate, the SBV has resumed cash withdrawal through Treasury bill issuance after a two-month hiatus. Since October 18, the SBV has net absorbed a total of VND59.2 trillion ($2.33 billion), with interest rates ranging from 3.74% to 4% per annum.

Son believed that the exchange rate will stabilize soon, as recent fluctuations mainly reflect seasonal factors, and the Fed's interest rate cut cycle is expected to continue. Moreover, the SBV's actions to reduce liquidity will help prevent the USD from strengthening too fast in Vietnam.

Meanwhile, Maybank Investment Bank noted that the recent exchange rate rise is having a certain negative impact on investor sentiment, particularly as the stock market tests the sensitive 1,300-point threshold - the peak of the year.

However, with the Fed beginning its rate-cutting cycle, the pressure on the exchange rate is expected to be short-lived. The broker showed optimism that the VND will stabilize against the USD in the near future, and that the SBV will maintain a "loose" monetary policy to support economic growth.