Dollar to strengthen against dong in Q1: HSBC

Since the beginning of the month, the listed price of USD at commercial banks has increased by VND130-170.

The USD index, which measures the strength of the USD against a basket of other currencies, has increased 0.52% since last month, and has risen a total of 3.69% year-on-year, according to the General Statistics Office.

Last Monday, the dollar’s price on the black market exceeded VND25,000 for the first time since October 2022. It is still being traded above this threshold.

Ngo Dang Khoa, head of markets and securities services at HSBC Vietnam, said that recent positivity on the US labor market and the economy in general, along with statements from members of the U.S. Federal Reserve (Fed) about taking actions based on actual data, have reduced the expectations that the Fed will reduce its benchmark interest rate.

This development has caused the yields on U.S. government bonds to increase slightly, leading to the dollar regaining strength on the international market.

The USD index is currently anchored at above 103, causing Asian currencies, including the dong, to weaken against the dollar, Khoa explained.

Additionally, Vietnam’s lower interest rate has also been a factor behind the rising exchange rate, he said, adding that the uptrend in the dollar-dong exchange rate would likely continue through the first quarter for several reasons.

Firstly, the State Bank of Vietnam's monetary policy is currently focused on facilitating economic growth whereas the Fed is tightening its monetary policy as core inflation in the U.S. has not been reduced as much as planned while the economy is growing faster than expected.

Secondly, dong liquidity remains high as credit growth and the disbursement of public investment have not increased.

Thirdly, while Vietnam's trade surplus and FDI remain high, certain global and regional geopolitical developments may have negative impacts on the dong.

Lastly, the dollar is generally expected to maintain its strength in the early months of the year as the Chinese yuan continues to weaken due to the country’s slower-than-expected economic recovery.

However, the dollar-dong exchange rate would likely slide in the second half of the year as the dollar rises and peaks while Vietnam’s economy and credit growth gradually improve, HSBC forecast.

"We [HSBC] expect the dollar-dong exchange rate to end the year at around 24,400," Khoa said.