Lately, the foreign currency (forex) rate has varied dramatically, but analysts predict that the rate will not be under as much pressure in the remaining months of 2023 as it was in 2022. The FX market was under enormous pressure in September and October 2022 as a result of global uncertainty.
In this setting, the State Bank of Vietnam (SBV) was forced to raise the selling price of the US dollar six times in just two months (from September to November 2022), totaling 1,720 dongs, or 7.4%. This year, the dollar has also soared against the dong, surpassing the 24,000 dong per dollar level. The selling rate at Vietcombank was 24,240 dongs on Tuesday, while the rate at BIDV was 24,230 dongs.
The latest exchange rate shock, according to Tran Ngoc Bau, chief executive officer of financial data company WiGroup, is related to the growing dollar’s demand for enterprises to pay some contracts. It is not due to a capital retreat from Vietnam. Furthermore, psychological reasons have contributed to the current volatility of the currency rate, as individuals are frightened that the September and October 2022 situation may repeat itself.
However, Bau stated that the situation in 2022 and this year were very different. Bau noted that the current situation was vastly different from the end of 2022, when the dollar was actually withdrawn from Vietnam because of concerns about a chain failure. Currently, the Vietnamese financial system is considerably more solid, with no capital withdrawals. Furthermore, the current account balance is pretty robust, and the total balance is expected to be somewhat positive this year. Meanwhile, the current account was relatively weak by the end of 2022 because service exports did not improve and the export surplus was small, according to Bau.
Furthermore, Bau stated that the context for the interest rate differential between Vietnam and the United States is completely different because the Federal Reserve (Fed) raised interest rates significantly last year, whereas the Fed is now in the final stage of the interest rate hike cycle. Inflation has lately begun to rise, although there is no reason to believe it will reach 3.5% this year, according to Bau. This aspect will give solid backing for the SBV’s program of economic support.
Please note that this article does not offer any instructions or suggestions regarding investment decisions. It is important for you to conduct your own research or seek professional advice from a qualified professional before conducting an investment decision.