The VND hit a record low of 25,600 per USD in March after the State Bank of Vietnam (SBV) raised its USD selling price to 25,698, marking its first adjustment since October 2024. How do you assess this?

Vu Binh Minh

Since the Lunar New Year in early February, the SBV has gradually raised the central exchange rate in consecutive sessions, exceeding 24,800 VND/USD in the past couple of days.

In the year-to-date, the central rate has risen by VND471, equivalent to a 1.9 per cent increase, marking a significant adjustment compared to the same period in previous years. The continuous upward trend in the central rate has also pushed the ceiling rate higher accordingly.

In addition, in mid-February, the SBV shifted its USD intervention mechanism from a fixed selling rate of 25,450 VND/USD to a floating mechanism, keeping the rate at VND50 below the ceiling. Combined with persistently low VND interest rates in the interbank market, this pushed USD/VND higher to 25,600 in early March, coinciding with when the US Dollar Index (DXY) rebounded past the 107 level.

However, given greater flexibility in exchange rate policy management, which created more room for exchange rate movement, USD/VND witnessed two-way fluctuation. By mid-March, it cooled down to 25,450-25,550 in the interbank market as the DXY declined, coupled with a more balanced USD supply versus demand.

Exchange rate developments have also become more complicated this year in the context of Vietnam’s open economy, along with external factors such as developed countries’ policy shifts affecting USD volatility and geopolitical risks, as well as trade balance and foreign investment.

What is HSBC’s exchange rate forecast for 2025?

Asian currencies, including VND, have not benefited much from the recent decline in the DXY, as concerns over US tariff policies persist, alongside weak investment appetite globally, and slowing growth conditions domestically.

On the other hand, headlines of Europe’s increased fiscal spending and increased defence spending may offer some positive spillover effects for countries in the region. However, at this stage, these impacts are expected to be relatively limited and unlikely to offset potential losses stemming from US policy measures.

Vietnam may face the highest tariff risk in ASEAN, given its trade surplus with the US reaching $123 billion in 2024. As a result, exchange rate pressures remain a key concern. HSBC Global Research maintains its forecast for the USD/VND exchange rate to reach 25,600 by the end of Q1 and 25,800 by year-end.

What factors could help ease depreciation pressure on the VND?

Several scenarios suggest that the DXY might be able to soften further in the near term, driven by signs of weakening US data, escalating trade tensions, and the resurgence of the European economy, all of which could help alleviate depreciation pressures on VND.

However, it remains too early to confirm a clear trend for the DXY at this moment, and the likelihood of its appreciation over the medium to long term remains significant.

For the USD to weaken sustainably, key conditions must align, including Europe and China’s economies improving, US growth struggles, pressure on the US Fed to cut faster, and tariffs proving benign. Yet, current US data shows no signs of an abrupt downturn.

Domestically, Vietnam continues to leverage its strengths, supporting investors through admin reforms and enhanced incentives in taxation and fees. Expanding trade partnerships beyond the US is also crucial. Vietnam recently elevated official ties with Singapore and Indonesia, expected to boost foreign investment inflows, enhance USD liquidity, and ease VND depreciation pressure.

In addition, the government’s visa liberalisation efforts are further driving retail consumption and foreign currency inflows. Meanwhile, inflation cooled in February, and with the National Assembly raising its target to 4.5-5 per cent, policymakers now have more flexibility to manage exchange rate pressures.

With interest rates being kept low, how do you think this impacts the exchange rate?

With Vietnam setting an economic growth target of at least 8 per cent for this year, policy measures have been directed towards maintaining liquidity stability and facilitating credit expansion. In practice, banks have been actively lowering deposit rates to create room for further reductions in lending rates.

Since March 5, the SBV has re-introduced 35-day and 91-day reverse repo transactions in the open market operation, alongside the existing 7-day term at an unchanged interest rate, to provide long-term liquidity support to the interbank system.

However, with the Fed yet to implement a clear path to further rate cuts, the currently wide interest rate differential between the USD and VND continues to exert pressure on the domestic exchange rate.

By flexibly utilising its monetary policy tools and proactively allowing room for exchange rate movements, the SBV has kept USD/VND fluctuations within a relatively narrow range, particularly in comparison to other regional currencies.

With businesses and investors closely watching exchange rates, what guidance would you offer to help them navigate the market?

The VND remains vulnerable to external factors such as the Fed’s interest rate policies, fluctuations in the DXY index, and tariff measures.

On the upside, if the Fed accelerates rate cuts, global economic growth outside the US improves as geopolitical conflicts subside, and investment capital returns to the market, particularly with the prospect of Vietnam’s stock market upgrade, these pressures could be balanced.

Perhaps the word “uncertainty” best describes the current trends and investor sentiment. To ensure optimal cash flow management and mitigate market risks, businesses should develop effective hedging strategies by utilising exchange rate and interest rate risk management tools.

Additionally, incorporating various exchange rate and interest rate scenarios, along with policy direction, into business and investment planning will be crucial in navigating this volatile environment.