In May, the USD/VND interbank exchange rate became tense as it continuously approached and exceeded the SBV's selling threshold at 25,450 (4.9% YTD). The bank has intervened by directly selling foreign currency in large volumes.

While the signal from the Fed has become more positive and the DXY has cooled down slightly, the domestic situation is not very favorable, with a trade deficit of USD 1 billion in May. Foreign currency flows are still under a lot of pressure from FDI enterprises transferring profits to the home country and export businesses leaving money abroad.

The unofficial exchange rates continued to increase to 28,855 on May 31 (4.4% YTD) while the difference between domestic and world gold prices remained high.

The exchange rate on June 12, 2024, at a number of commercial banks increased to 25,466 VND/USD. Specifically, at Vietcombank, the exchange rate is fixed at 25,196 – 25,466 VND/USD, up 4 VND in both directions compared to the previous trading session. At BIDV, the exchange rate is still listed at 25,226 – 25,466 VND/USD, up 4 VND in both directions. Meanwhile, Techcombank listed the exchange rate at 25,187 – 25,466 VND/USD, up 4 VND on sale.

KBSV believed that the short-term exchange rate would still be under pressure due to the above foreign currency flow issues and DXY anchoring in high areas. Therefore, the SBV will continue to have to sell foreign currency during periods of strong exchange rate fluctuations. In the long term, it is forecast that the exchange rate will remain at its current high level until positive signals appear to help the exchange rate cool down at the end of the year (when the Fed lowers interest rates).

Accordingly, KBSV maintained the forecast of an exchange rate increase of 3.5% in 2024 for the following reasons:

First, according to CME, the market is expecting the Fed to lower interest rates in September (probability of 51.3%), and there will be two cuts this year. Newly released economic data shows that the US economy is still healthy but is starting to show signs of weakness. The Fed’s preferred inflation measure (PCE) has cooled as expected, reinforcing this scenario. The DXY declined 1.5% during the month, however, with expectations that the ECB will lower interest rates at the June meeting, it is likely that the index will increase again and put more pressure on the exchange rate.

Second, the situation on the domestic FX market is going in opposite directions. Foreign currency flows will be under a lot of pressure due to the increased need to import raw materials to serve production while exports grow slowly. The positive point is that FDI capital flow is still stable (accumulated disbursement in 5M24 is USD8.25 billion, the highest in the last five years). The gold price difference has also decreased to VND6 million/tael after the SBV allowed SJC and the big four state-owned banks to buy gold from the SBV and sell directly to people, limit ing smuggled gold.