Many analysts believe that the exchange rate will continue to be under pressure in the last months of 2022 due to the high anchoring of the USD when the Fed maintains its interest rate hike schedule.
In a newly released strategy report, VnDirect Securities said that a stronger USD has put pressure on Vietnam’s exchange rate.
As of September 21, 2022, the dollar index (DXY – measuring the strength of the US dollar against a basket of currencies) reached 110.6 points (+15.6% over the same period last year). The stronger USD caused the USD/VND exchange rate on the interbank market to increase by about 3.8% over the same period to 23,688 VND/USD, the highest level in history. Meanwhile, the central exchange rate set by the State Bank of Vietnam for the USD/VND exchange rate pair is 23,316 VND/USD, an increase of 0.7% compared to the end of 2021 and the USD/VND exchange rate on the free market increased by about 2 .7% since the beginning of 2022.
However, compared to regional currencies, Vietnam Dong is still one of the most stable. Since the beginning of 2022 (data as of September 21, 2022), most regional currencies have fallen by more than 5% against the USD, including the Philippine Peso (-12.6% against USD), Thai Baht (-11.6% vs USD), Chinese Yuan (-11.6% vs USD), Malaysian Ringgit (- 9.7% vs USD) and Indonesian Rupiah (-5) .4% against USD).
The analysis team believes that the exchange rate will continue to be under pressure in the final months of 2022 due to the high anchoring of the USD when the Fed maintains its roadmap to raise interest rates. However, VnDirect still sees factors supporting the exchange rate, including stronger FDI inflows, improved trade surplus (forecast to reach about US$8.9 billion in 2022), baxlance of payments surplus, and foreign exchange reserves reached a safe threshold (equivalent to 3.3 months of imports).
All in all, VnDirect forecasts that the VND may depreciate about 3.5-4.0% against the USD in 2022.
In the newly released report, Rong Viet Securities (VDSC) is also concerned about the worse scenario for the devaluation of the Dong that is happening with the USD index continuing to rise.
In the context that other central banks are not as determined to deal with high inflation as the FED, analysts believe that the dollar will be able to return to the old peak set in early 2022 at 120. 3. This means that pressure on the domestic exchange rate is inevitable as the buffers to help stabilize the exchange rate have weakened.
According to VDSC, although the VND-USD interest rate differential in the interbank market is still significantly positive, the demand for USD in the system has not cooled down nearly $1.9 billion.
The scenario of devaluation with the dong that VDSC expects for the whole year of 2022 when the USD increases strongly is from 4-5%.
Similarly, BVSC also believes that risks to the VND from now to the end of the year, if any, will still come from the movement of the USD, the DXY index continues to increase strongly – when the FED has to raise interest rates more than expected and US inflation is out of control. The current DXY index seems to reflect what is likely to happen – the Fed raises interest rates by 125 basis points until the end of 2022 and another 25 points in 2023. If the Fed decides to raise interest rates higher than expected. Current expectations may affect the uptrend of the USD.
With the above context, BVSC believes that the devaluation of the VND may reach the highest level of 4% in 2022, but the devaluation at the moment is already in the highest region of the year. For 2023, the group forecasts that when the Fed’s operating interest rate peaks, the USD is more stable, and the movement of VND will return to the stable trajectory of previous years within a range of +/- 2%.