Vietnam Expected to Maintain Control Over Forex Rates in 2024

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Experts believe that Vietnam possesses effective tools to proactively manage the dong/US dollar exchange rate in 2024, even if the US Federal Reserve (Fed) maintains its interest rates at current high levels due to geopolitical uncertainties such as the conflict in the Red Sea.

While the dong/US dollar exchange rate has temporarily stabilized, there is potential for strain in the domestic market if the Fed continues to hold interest rates at elevated levels for an extended period.

Globally, the US dollar is strengthening as investors anticipate that the Fed will not cut interest rates soon. The US dollar index (DXY) reached 104.29 points as of February 16, reflecting a 0.24% increase over the previous month. In Vietnam’s domestic market, the State Bank of Vietnam’s central rate of the dong against the US dollar was 23,971 dong on February 16. However, the average US dollar price on the unofficial market has exceeded 25,000 dong for the first time since October 2022.

Ngo Dang Khoa, Director of HSBC Vietnam’s forex, capital markets, and securities services division, predicts increasing pressure on the dong/US dollar exchange rate in the first quarter of 2024. Factors contributing to this pressure include positive signals from the US labor market and economy, which have reduced expectations of the Fed lowering policy interest rates in the near term. The geopolitical instability, particularly the Red Sea conflict, has also led to the appreciation of the US dollar as investors seek it as a haven.

The dong/US dollar exchange rate may continue to rise in the first half of 2024 due to the high-interest rate gap between the US dollar and the dong. However, the pressure on the exchange rate may ease once the US dollar peaks and the Fed adjusts interest rates.

Geopolitical instability, such as the Red Sea conflict, has negative effects on the world economy, leading to increased production costs, prices, and inflation. In response to rising inflation, monetary policy may be slower to normalize.

Despite these challenges, Vietnam can proactively manage the dong/US dollar exchange rate due to its advantages of a large trade surplus and positive foreign direct investment disbursement. These factors provide Vietnam with resilience in managing its exchange rate amidst global uncertainties.