USD/VND exchange rate surges in first month of 2024

The USD/VND exchange rate has seen notable developments in the first month of 2024 when it increased significantly in both official and free markets.

Specifically, the State Bank of Vietnam (SBV)’s central rate of the Vietnamese dong against the US dollar was adjusted up 0.7% in January 2024 to 24,036 VND per dollar.

The exchange rate on the interbank market in the month also increased by 1.4% compared to the end of 2023 to 24,611 VND per dollar, the highest level since the end of November 2022.

The dollar buying and selling exchange rate listed by Vietcombank is currently at 24,395 VND and 24,765 VND per dollar, respectively, an increase of nearly 1.4% since the beginning of this year and only about 0.5% lower than the historical peak recorded in the end of October 2022.

Exchange rate fluctuations in the free market are similar to those in the official market. The dollar selling rate on the market reached a record high of 25,120 VND per dollar at the end of last week before cooling down to 25,035 VND per dollar on January 29.

Analysts attributed the USD/VND exchange rate increase in January to the influence of the escalating developments of the greenback in the international market and an overly high gap between dollar and dong interest rates.

In a newly published report, Viet Dragon Securities Company (VDSC) said that the current devaluation of the dong against the dollar is due to the dollar and dong interest rate gap still being very large, at approximately 5% in January.

However, analysts from KB Securities Company (KBSV) believed the recent increase in the USD/VND exchange rate has not forced the SBV to intervene to stabilise the exchange rate. It explained that the SBV usually intervenes when the exchange rate increases by at least 2%. The interbank exchange rate is also still far from the SBV’s selling rate of around 25,187 VND per dollar. Besides, in the context of stable low inflation, the SBV’s current monetary policies still prioritise lowering interest rates to stimulate economic growth.

In case the USD/VND exchange rate increases more than 3% from the beginning of this year - corresponding to the Dollar Index (DXY) around 108 - KBSV believed that the possibility of the SBV intervening to stabilise the exchange rate is feasible. However, the KBSV’s analysts do not expect this scenario because DXY's room for further growth is quite limit ed given the expectation that the US Federal Reserve (Fed) will lower interest rates in 2024.

KBSV expected the USD/VND exchange rate to be more stable in 2024 and to increase by 1.5% to reach 24,600 VND per dollar in the year thanks to an overall balance surplus of 7-10 billion USD in 2024 in the wake of positive FDI inflows and remittances, and a reduction in the balance finance deficit. In addition, the Fed's interest rate cut this year will help narrow the negative interest rate gap between dollar and dong./.