The USD/VND rate may continue to rise

On March 4, 2022, the State Bank of Vietnam set the daily reference exchange rate for the US dollar at 23,151 VND/USD, up 8 VND from the previous day. 

When confronted with the aforesaid scenario, Vietnamese exporters should make a plan to purchase a foreign exchange forward contract as soon as feasible, but they must strike a balance between the forward cost and the increase in exchange rates.

Increased exchange rate pressure

More than 300 Russian banks and financial institutions are members of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which ranks second in the world after the United States. As a result of the exclusion of numerous Russian institutions from SWIFT, import and export movements, foreign investments and remittances, international payments and debt repayment will be disrupted. Furthermore, the United States proposed freezing Russia's $643 billion in foreign exchange reserves.

The ruble has fallen substantially against the USD and several other currencies as a result of the above sanctions, as well as many others imposed by the US and the West on Russia.

The safe-haven status of the USD has expanded dramatically as a result of the developing geopolitical and geo-economic conflict between Russia and Ukraine, helping the USD strengthen versus several other currencies, including the Vietnamese dong. The USD index increased from 96 in late February to 99 on March 5, 2022.

On March 4, 2022, the State Bank of Vietnam set the daily reference exchange rate for the US dollar at 23,151 VND/USD, up 8 VND from the previous day. With the current trading band of /- 3 percent, the ceiling rate applicable to commercial banks during the day is 23,845 VND/USD and the floor rate 22,457 VND/USD.

Mr. Nguyen Minh Tuan, CEO of AFA Capital, said another factor to consider is that in 2022, the USD/VND rate will tend to rise as the FED prepares to raise interest rates and taper QE, prompting cheap money to flee emerging nations, including Vietnam.

How do you manage risks?

As can be seen, the USD/VND rates have declined at times in recent years, as can be seen. The USD/VND rate may see some downward movement in 2022. As a result, Mr. Nguyen Minh Tuan advised enterprises to employ futures contracts at a fair period to effectively hedge exchange rate risk.

"If the USD/VND rate tends to rise, importers will face greater difficulties in the context of economic contract stability. Businesses must have a plan to acquire FX forward contracts in such a circumstance, but they must strike a balance between forward charges and exchange rate appreciation, "Mr. Nguyen Minh Tuan stated.

According to Mr. Nguyen Minh Tuan, futures prices will no longer be inexpensive as interbank interest rates are about to rise again. As a result, firms will need to buy foreign currency futures as soon as possible.

Exporters, in particular, will benefit from an increase in the USD/VND rate, so they won't have to be concerned.