There is little exchange rate volatility at this time of the year thanks to ample supply of foreign exchange, according to SSI Securities’ SSI Research.
It is not as if this year FDI or remittances have declined, it added.
The difference in interest rates between the U.S. and Vietnam and the monetary policy trends of the former have kept demand for the dollar high.
The greenback has surged especially since the Lunar New Year ended on Feb.15. In less than a week after the holidays it gained VND200 against the Vietnamese currency to trade at VND24,600.
A few days after that it is sold at banks for VND24,800 – 24,850. It has gained VND430, or 1.76%, for the year. On black market, the dollar has risen to above VND25,000.
Phu Hung Securities listed four reasons for the sharp appreciation.
Firstly, the market no longer expects the U.S. to lower interest rates in the first half, they could remain high until mid-year, and any subsequent reduction may not be too significant.
This will widen the interest rate gap between Vietnam and the U.S.
Secondly, imports have been steadily rising in recent months as businesses buy more raw materials.
In January imports rose to $31 billion, the highest since July 2022.
Thirdly, the demand for foreign exchange has increased as businesses repay foreign currency loans and repatriate profits.
Lastly, the hoarding of foreign currencies globally as the dollar strengthens relentlessly is also a factor.
Ngo Dang Khoa, head of markets and securities services at lender HSBC Vietnam, expected the dollar to weaken against the dong in the second half of this year, especially once Vietnam’s economy improves.
“The dollar-dong exchange rate will close the year at around VND24,400.”
Phu Hung Securities said the State Bank of Vietnam would keep the exchange rate in check and not let it spiral out of control.
The dong is more resilient than other currencies in the region, it added.
It has only declined by 1.5% against the dollar, while the Thai baht has lost 5%, the Malaysian ringgit, 3.8% and the South Korean won, 3.1%.
