Several bank executives earlier this month noted that November was a rare moment when the VND-USD exchange rate dropped 1.2 per cent compared to October, helping to soothe the rate hike from early this year to 2.7 per cent. The VND has appreciated amid a more tempered dollar.

Soothed pressure on VND-USD exchange prospects, photo: Dung Minh

The exchange rate in the free market, by contrast, had inched up slightly during the month, possibly being driven by gold price sharp fluctuations.

One top executive at major state lender BIDV commented, “In November, the VND-USD exchange rate in the interbank market was down from 300-350 percentage points to hover around VND24,260 per dollar, meaning that compared to early this year, the exchange rate has gained nearly 3 per cent, showing fair stability compared to other pairs in the region.”

The main cause behind the more tempered exchange rate came from external impact factors, he said.

Accordingly, in November, the data on employment and inflation in the US tended to cool down more clearly, causing the market to return to expectations that the US Federal Reserve would have to cut interest rates soon in 2024.

“The risk-on appetite of investors has also formed in the US, EU, and some Asian stock markets with the expectation that the world’s top economy can get out of recession and move towards a soft landing in 2024,” said the BIDV executive.

In the domestic market, the basic factors have not changed much in general.

The foreign currency balance saw a slight deficit of about $500 million in November. The VND-USD interest rate difference eyed a sharp contraction with the average one-week term of minus 4 per cent, per year in the face of very abundant VND liquidity.

In addition, although credit tended to be accelerating compared to October, it did not bring a breakthrough compared to one year ago as well as the increase in the deposit volume.

According to data from the State Bank of Vietnam, as of November 22, credit expansion approximated 8.21 per cent, up about 1 per cent compared to the end of October, almost equal to the growth in the deposit volume, yet still much lower compared to one year ago when it spiked by 12 per cent.

In general, analysts agree that the most difficult period in 2023 for the domestic exchange rate has passed. Accordingly, the VND-USD exchange rate on the interbank market is basically stable because there are not many unexpected factors.

As such, in the international market, the focus continues to be on US inflation and employment figures and the messages given at the Fed’s meeting on December 13.

The previous prediction that the Fed would continue to keep interest rates at the current level became a reality when Fed officials unanimously voted a fortnight ago to keep interest rates unchanged in the 5.25-5.5 per cent range, the highest in 22 years.

More noteworthy, at the December meeting, for the first time since March 2021, policymakers predicted there would be no further interest rate increases. With inflation decreasing at a faster rate than expected, and the US economy possibly witnessing growth slow down next year, the Fed would have room to cut interest rates more strongly.

In related developments, the domestic currency balance is expected to stay more positive this month, with an estimated surplus of between $500 million and $1 billion.

That is because the year-end is often the peak time of foreign direct investment disbursement, this year expected to touch around $3 billion, while the trade balance is likely to continue a surplus trend.

According to data from the General Statistics Office, the trade balance of goods in the first 11 months was estimated to post a surplus of about $25.8 billion, setting a record.

Dinh Duc Quang, managing director of the Currency Trading Division at UOB Vietnam, said that like other Asian currencies, it seems that the recent sell-off of VND has ended.

“The VND-USD exchange rate fell to a lower level after reaching UOB’s forecast of VND23,500 per dollar for Q4 2023 in October after the Fed signalled it could end its rate hike cycle,” Quang said. “While the VND may follow the trend of a broad forex recovery across Asia, gains are likely to be limited by a modest economic rebound in 2024.”