Securities firm expects Vietnam currency to remain strong in 2021

A recent note by securities firm VNDirect forecast exchange rates to remain steady until the end of 2020 as they have been since the beginning of this year.

On the black market too, the dong has remained steady thanks to a trade surplus and surge in foreign reserves from $80 billion at the end of last year to $92 billion three months ago.

"The USD-VND rate may fluctuate by around 0.5 percent next year, instead of the previously predicted 0.5-1.5 percent [weakening of the dong]," VNDirect said.

A recovery in manufacturing and domestic demand would lead to a quick economic recovery in 2021, which would keep exchange rates steady, it said.

Vietnam targets GDP growth of 6 percent next year despite uncertainties due to the Covid-19 pandemic.

The U.S. Treasury has added Vietnam to a currency manipulation watch list, precluding any further weakening of the dong.

The U.S.’s expansionary monetary policy will weaken the dollar while a quick economic recovery is expected to strengthen the yuan.

A stronger dong in 2021 will mean less pressure in terms of paying foreign debts, reducing public debt as ratio of GDP, and a likely improvement in the balance of trade with the U.S., taking the wind out of currency manipulation accusations.

"However, any influence a stronger currency may have on exports will be minimal since the currencies of Vietnam’s leading trade rivals like mainland China, the E.U., South Korea, Taiwan, and Japan are also gaining against the dollar," VNDirect said.

Only some countries like India, Thailand, Indonesia, and Malaysia will benefit from the dong’s strengthening since their currencies have lost heavily.