Will VND continue an uptrend against USD?

As of 31 August 2021, the interbank exchange rate for USD/VND fell 0.7% MoM.

The VND has strengthened against the USD. As of 31 August 2021, the interbank exchange rate for USD/VND fell 0.7% MoM, while the USD/VND exchange rate in the free FX market dropped 0.6% MoM and the SBV-set exchange rate for the USD/VND slid 0.2% MoM in July 2021.

In early September, the USD/VND rate traded around VND 22,760-22,770, which is also the lowest level in many recent years. Since early 2021 alone, the VND has appreciated by about 1.47% against the greenback.

VND is also one of the few currencies in the region that has appreciated against the USD since the beginning of this year. This trend is mainly driven by the change in exchange rate policy of the State Bank of Vietnam (SBV). Along with the process of modernizing the monetary policy, the SBV committed to conducting the exchange rate proactively, flexibly, contributing to stabilize the macro-economy, thereby alleviating concerns of the US Treasury on monetary manipulation.

Since June 2021, the SBV has lowered its USD buying rate by VND 375 to VND 22,750, resulting in a total decrease in USD buying rate by VND 450 VND since November 2019. This trend is also said to go against the previous years when VND often depreciated against the USD. 

HSBC Global Research expects that the SBV will probably continue to maintain the exchange rate as in the past time, to further reduce the USD buying rate. Accordingly, USD/VND is forecasted to decrease from VND 22,750 at the end of Q3 to VND 22,525 at the end of 2021.

Meanwhile, VNDirect kept neutral for VND for end-2021 due to the following reasons: First, USD may regain the upper hand in the rest of 2021 as the Federal Reserve (FED) is considering scenarios of tapering quantitative easing (QE) from late-2021. Second, recent inflation picks up in Vietnam. Third, trade deficits hit about US$3.7bn in the first eight months.

USD/VND exchange rate from early 2021

However, HSBC Global Research said, in 2022, the USD/VND rate would likely reverse to VND 23,000 in the context that Vietnam’s current account might turn into a deficit and FDI inflows might slow down. The VND might be under pressure of a stronger USD and a weaker renminbi in the international market. In 2021, the VND has overcome many adverse factors such as concerns about the long-lasting effects of the COVID-19 pandemic, slowing GDP growth, trade deficit, and monetary policy differences between SBV and FED. However, these issues may become more prominent next year.

Vietnam's current account surplus narrowed to $0.4 billion in Q1 from over $3 billion per quarter on average in the 2019-2020 period. The decline in the current account is likely to accelerate in the future as the trade balance has been in a deficit of $1.3 billion a month since April 2021. Meanwhile, a larger service deficit resulted from lost tourism revenue. Before the COVID-19 outbreak, net tourism revenue ($5-6 billion) was important to cover the transportation-related deficit ($4-5 billion) and other service-related deficits (3-4 billion USD).

FDI inflows have been by far the main source of Vietnam’s foreign exchange flows (5.9% of GDP). However, this inflow has been slowing, with monthly data for realized investments showing a decline from an average of $1.8 billion in April-December 2020 to $1.6 billion in April-July 2021. For FII inflows, with lowered GDP growth forecast, foreign investors net sold $1.5 billion in 1Q20 -1Q21 period. Many experts said these net sales would be at risk of going up in the future.