The USD/VND rate may stay steady in 2H23

During the 29th Week, the USD/VND rate increased by 0.05% over the previous week, hitting VND23,657 at the end of Friday. Similarly, the US Dollar index (DXY), which measures the value of the US dollar in relation to a basket of other currencies, rose 1.13% from its one-year low, closing at 101.04 points. Notably, VCB's bid/ask climbed by 20 basis points to VND23,460/23,830, while the shadow market's bid/ask fell slightly to VND23,610/23,660.

With the DXY showing signs of recovery, the State Bank of Vietnam (SBV) chose to raise the selling price of the US dollar to VND 24,870, a 14 basis point (bps) decrease from the previous week's rate. The buying price of the USD, on the other hand, remained steady at VND 23,400.

Kis Vietnam predicted that the FED's 25 basis point rate rise would be the last of the current tightening cycle. As a result, the USD/VND exchange rate is expected to stay constant, with no notable increases in the near future.

As the 29th week comes to a close, the USDVND exchange rate is much higher at 257bps above the USD purchase price, indicating that the State Bank of Vietnam (SBV) did not enhance USD reserves this week. According to KIS Vietnam, the SBV has increased its foreign exchange holdings to around USD6 billion.

Despite evidence of improved lending growth, Vietnam's banking industry still has significant liquidity. Because of the excess liquidity, the funding cost has reached an all-time low, reaching a record low of 0.18% this week, much below the current Fed fund rate of 5.25%. This has increased the attraction of investing in US assets, perhaps leading to capital outflows. As a result, the value of the Vietnamese dong (VND) may be pushed lower. Furthermore, the Federal Reserve's projected future interest rate rises later this year may have a negative impact on the VND.

Kis Vietnam, on the other hand, predicted that the USD/VND exchange rate will stay steady in the foreseeable future for a variety of reasons.

First, the SBV has established flexible monetary policies to ensure exchange rate stability.

Second, as previously stated, Vietcombank (VCB)'s capital increase transaction is proceeding apace. If completed, this deal might result in a USD1.2 billion influx. Furthermore, the purchase agreement in which Sumitomo acquired a 15% stake in VP Bank (VPB) contributed roughly USD1.5 billion. Furthermore, major M&A transactions, such as Hoang Anh Gia Lai Agricultural (HNG) 10% acquisition (equivalent to about USD0.5 billion) and SHB (USD0.78 billion), are likely to deliver significant USD inflows during the year. These mergers and acquisitions might help the government stabilize the USDVND exchange rate this year.

Third, in 2023, Vietnam is likely to receive a significant inflow of USD via remittances. Furthermore, in the first half of 2023, the country had a trade surplus of USD12.25 billion. These considerations will provide the Vietnamese government with adequate resources to keep the native currency from depreciating.

Mr. Dinh Quang Hinh, analyst at VNDirect, sees a number of factors that could put more pressure on the VND in 2H23, including (1) the Fed funds rate remaining at a peak until the end of 2023, while the SBV intends to lower interest rates to support growth, and (2) domestic inflation picking up in late-3Q23. However, the USD/VND exchange rate will be sustained by the following factors: (1) an ongoing trade surplus, (2) stable FDI and remittances, (3) increased foreign currency supply from stock sales to foreign investors, and (4) Vietnam's continued high real interest rates.

"The USD/VND exchange rate may experience greater volatility in the second half of 2023." However, it is expected to vary by no more than /- 2.0% from the beginning of 2023," stated Mr. Dinh Quang Hinh.