A report on ASEAN and Vietnam published by UOB on January 8 predicts a stronger USD in the first half of this year. The projection comes amid Donald Trump’s return to the US presidency and the anticipated uncertainties surrounding his second term, starting January 20.

Vietnam has some strong conditions for exchange rate stability, photo Le Toan

“The market has revised its outlook with fewer expected US Federal Reserve rate cuts during the Trump presidency, which will bolster the USD’s strength. The VND is likely to be affected by tariff policies and the Chinese yuan’s trajectory. Given the external headwinds are not likely to dissipate in the near term, the VND looks set for further losses against the USD,” the report said.

UOB projects the USD/VND exchange rate at 25,800 in Q1 and 26,000 in Q2. Dinh Duc Quang, managing director of Currency Business at UOB Vietnam, noted that major policy changes in the US, Vietnam’s largest trading partner, have kept both Vietnam and the global market in a wait-and-see status.

“UOB does not expect overly extreme policies from the US in the near term, despite some statements about imposing economic sanctions by the newly elected president. As such, the VND’s outlook is mixed, with both opportunities and challenges. Given the current strength of the USD, I believe the USD currency will still remain dominant in the first half of this year,” Quang added.

He elaborated that UOB anticipates the Fed to cut rates by 50 basis points in the first half, keeping the USD interest rate at 4 per cent. “This is a significantly high rate, making the USD an attractive and safe reserve currency,” he noted.

However, Quang stressed that the VND is not weakening, but the USD is excessively strong. “Vietnam’s favourable conditions for exchange rate stability within a 2-3 per cent range this year include projected GDP growth exceeding 7 per cent, expanded trade partnerships, and sustained trade surpluses,” said Quang. “The State Bank of Vietnam (SBV) will allow exchange rate fluctuations within its management framework.”

Shinhan Bank Vietnam’s report on Vietnam’s economic and financial market outlook for H1 predicts a decline in the USD/VND exchange rate, supported by Vietnam’s strong fundamentals. However, this will likely be limited due to the slow economic recovery in Europe and China.

“Interest rate cuts in major economies, especially by the Fed, could provide the SBV with room to ease monetary policy, boosting economic recovery and growth. When domestic and foreign interest rate differentials narrow, the exchange rate burden lessens, and the available room expands,” stated the report. “Lower rates can support the economy during challenging external fluctuations. However, the analysis recommended prioritising direct support measures, such as promoting credit growth, in the initial stages rather than cutting interest rates.”

In contrast, Nguyen Thi Phuong Lan, research director at Rong Viet Securities Corporation, warned that Vietnam’s diminishing foreign exchange reserves and the lack of sustainable inflows or retention of foreign currency could lead to significant USD/VND fluctuations this year, estimated at a 5-per-cent range. The year is expected to close with the rate at 26,200 VND/USD.

“All indicators point to the USD potentially strengthening further in 2025. Thus, maintaining exchange rate stability will be more challenging than advantageous for the SBV,” Lan said. “The biggest difficulty lies in foreign investment inflows that merely offset repatriated profits, while USD demand remains high due to elevated US interest rates and weakened foreign exchange reserves.”

Pham Chi Quang, director of the SBV’s Monetary Policy Department, reaffirmed the close monitoring of international macroeconomic developments. “The global foreign exchange market only began fluctuating with the US presidential election in November,” said Quang. “However, with tight policy management, liquidity support for credit institutions, and interbank market adjustments, speculative pressure on foreign currencies eased. The VND’s depreciation of 5.03 per cent was significantly lower than other currencies, ensuring stable interest rates and controlled inflation.”