Vietnamese dong to slide further 1% by year-end: Bank of America

The Vietnamese dong, the local currency, is projected to weaken by an additional 1% by the year-end after sliding sharply against the U.S. dollar since the start of this year, according to Bank of America.

“We revise our forecasts in anticipation of further modest VND depreciation pressure to 25,600 by end-Q2 and ultimately USD/VND at 25,700 by year-end,” the bank (BofA) said in a recent report.

The VND depreciation accelerated in the second half of February in tandem with a surge in gold prices. The currency is currently trading at 25,450 per dollar, weakening almost 5% since the start of the year.

Compounding the impact of delayed Fed cuts are "Vietnam’s political instability following the second presidential resignation in two years" and difficulties in its property sector, said BofA. Those headwinds fuel domestic demand for the U.S. dollar and gold, it added.

BofA said it was bearish on a slew of Asian currencies and neutral at best on others. “We are not bullish on any currency in Asia,” the bank said, with many currencies impacted by a delayed Federal Reserve easing cycle and sustained strength in the U.S. dollar.

Singapore-based bank UOB in early March forecast the VND 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.

UOB analysts reckoned that 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.

They updated USD/VND forecasts at VND24,400 per dollar in Q2, VND24,200 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 early March that consistently low VND interest rates were exerting pressure on the USD/VND while the U.S. Dollar Index (DXY) remained 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.

The State Bank of Vietnam’s standing Deputy Governor Dao Minh Tu noted on April 19 that the year-to-date devaluation of the dong at 4.9% was still smaller than several regional peers, including the Taiwan dollar, the Thai baht, the Japanese yen, and the Korean won.

“We hold that management of the forex rate should be flexible, letting it move up and down properly, mitigating its impact on external trade,” Tu said.

Tu on Thursday attributed the weakening of the dong to several external and domestic factors. On the external front, he named the fight against high inflation by the U.S. and other major countries, uncertainty about the timing of rate cuts by the Fed, geopolitical tensions that led to rallies in oil and gold prices.

Domestically, the USD/VND exchange rate has been affected by low interest rates of the dong, a resurgence in foreign currency speculation, heightened demand for foreign currency driven by import recovery, limited foreign currency supply due to weaker exports, Tu added.

The central bank deputy governor reaffirmed the bank stood ready to intervene to contain the overdone devaluation of the dong, including selling hard currency from its forex reserves.