Vietnamese currency peaks in Q2, forecast to appreciate in coming months: Shinhan Bank

The exchange rate in Vietnam peaked at VND25,352 per U.S. dollar in Q2/2024, and could appreciate to VND25,280 and VND24,980 on average in Q3 and Q4 this year, respectively, according to Shinhan Bank Vietnam.

In its latest forecast for the second half of this year, the South Korean-invested bank said the exchange rate will continue to face pressure from conflicts in the Middle East, the U.S. interest rate, and the lacklustre economic performance in China.

It also noted that the recent depreciation of the Vietnamese dong was inevitable.

Vietnam’s advantages include a strong recovery of the manufacturing-processing sector with a focus on exports, and the State Bank of Vietnam’s (SBV) readiness to sell gold and foreign reserves to support the market, it argued.

The bank noted that the Vietnamese dong could appreciate when the U.S. Federal Reserve (Fed) changes its monetary policy, particularly by reducing interest rates later this year. Other supporting factors are likely to be improvements in foreign direct investment flow and increased public investments in the country.

In the medium- and long-term, as major economies cut their interest rates, Vietnam's central bank will have more room to reduce interest rates and support economic growth, Shinhan predicted.

Reviewing recent developments, it said the SBV has been cautious in decreasing interest rates amid depreciation of the local currency and inflationary pressure. As a result, in the short term, the policy rate will continue to support the economy, it said.

Analysts with KB Securities Vietnam JSC (KBSV) earlier this month predicted the USD/VND exchange rate to remain under great pressure in the coming months, driven by rising demand for input material imports, the tendency to deposit USD overseas by exporting companies and foreign-invested enterprises, and the stubbornly high U.S. Dollar Index (DXY).

They said that upward pressure on the USD/VND rate is unlikely to ease until the middle of Q3/2024, when the Fed is poised to make the first interest rate cut in years.