Dollar gain against dong only temporary: HSBC

In the first two weeks of this month the dollar gained by around 1.2% to VND24,000 after being mostly steady during the second quarter, HSBC data shows.

It was its biggest move in 10 months.

The State Bank of Vietnam also reduced its reference rate to a new low of VND23,951 to the dollar on Thursday, indicating the rising pressure, Ngo Dang Khoa, HSBC’s country head of markets and securities services, said in a note.

The dollar’s rise was mostly triggered by global developments like the hike in U.S. interest rates last week and concerns that U.S. inflation is cooling off slower than expected, he said.

The depreciation of the yuan amid China’s slowing economic recovery have also strengthened the dollar, he said.

The Vietnamese government has been supporting growth with its policies. The SBV was among the first central banks in Asia to cut policy rates to boost economic recovery, taking the gap between Vietnamese and U.S. rates to record levels.

But all these would only have a temporary impact on the exchange rate, with the dollar expected to weaken soon since the U.S. is set to reach the last milestone in its monetary tightening policy, Khoa said.

Vietnam is also seeing positive economic signs such as a trade surplus of US$15.23 billion in the first seven months as against $1.34 billion in the same period last year.

FDI was up 0.8% to $11.58 billion.

The government is still pursuing economic recovery through its monetary and fiscal policies.

HSBC forecast the dollar to be worth VND23,450 on average in the third quarter, a 2.2% decline from now, and depreciate further to VND23,350 by the end of the year.