What outlook for USD/VND rates by year-end?

US Dollar buckled on Fed rate cut

The US Dollar began this month on a strong note at 101.8 and remained relatively steady until mid-September, as economic indicators continued to send mixed signals. While the unemployment rate stayed at a historically low 4.2%, it had risen in four of the past five months—a pattern that often foreshadows recessions. This, along with weaker job gains in August, heightened concerns over the health of the labor market.

However, on a positive note, other aspects of the economy appeared to remain on solid footing. In particular, inflation fell sharply from a peak of 9.1% in mid-2022 to a three-year low of 2.5% in August 2024, while retail sales surprised on the upside with an increase of 2.1% yoy. Payroll growth also remained seemingly steady, and manufacturing production rebounded sharply, helping soothe concerns about the sector. Amid a raft of upbeat news on the economy, the DXY hovered around the 101 thresholds as the market anticipated a 25 bps rate cut by the central bank, given that there was not enough distress to warrant a 50 bps reduction.

Surprisingly, the Fed took an unusually aggressive move by slashing its key interest rate by 50 bps, aiming to cushion the economy from a further slowdown amid mounting risks to the labor market. Following this decision, the DXY plunged continuously and ended the month at 100.2. With the economy now in equilibrium and inflation on track to reach the 2% target, Fed policymakers signaled the likelihood of two more rate cuts this year, but in smaller, 25 bps increments.

USD/VND rate slid to 24,564 VND/USD

The Fed’s monetary policy pivot has modestly eased the pressures on the USD/VND exchange rate. Compared to the beginning of September 2024, the interbank USD/VND fell by 1.3%, reaching 24,564 VND/USD on September 30, 2024. The depreciation of VND against the US Dollar since the beginning of the year has narrowed to 0.9%, down from a peak of nearly 5% recorded in June. The free-market rate dropped to 25,250 VND/USD, while the central rate is standing at 24,093 VND/USD, showing rises of 2% and 1%, respectively, compared to the start of 2024.

MBS observed that this ebbing exchange rate pressures would give the State Bank of Vietnam (SBV) ample room to focus on boosting credit growth and stimulating domestic consumption as well as investments.

“We believe the pressure on VND will ease and expect the USD/VND to range within 24,700 – 24,900 in 4Q24. Supportive factors for VND include positive trade surplus (US$20.8bn in 9M24), net FDI inflows (U$17.3bn, 9% yoy) and a rebound of international tourist arrivals (43% yoy in 9M24). The stability of the macro environment is likely to be maintained, and further improvement will be the basis for stabilizing the exchange rate in 2024,” said MBS.