Exchange rate forecast to remain stable in second half of 2023

According to experts of Yuanta Vietnam Securities Company, the US$/VND exchange rate from the beginning of 2023 fluctuated around a range of +/- 1.9% at VND23,240 - 23,630 per dollar, much more stable than in 2022 when the rate sometimes peaked at VND24,692 per dollar, up 4.2% against the State Bank of Vietnam (SBV)’s reference exchange rate.

As of the beginning of June, the US$/VND exchange rate decreased by about 0.52% compared to the start of 2023 thanks to the abundant supply of foreign currency from the trade balance surplus, disbursed FDI inflows, international tourism recovery and the weakening of the dollar.

According to the experts, there are a number of factors that positively support the exchange rate in the second half of this year.

First, Vietnam’s foreign exchange reserves have grown again. After strong fluctuations in the monetary market in 2022, the nation’s foreign exchange reserves at the end of 2022 reached about US$90 billion. In the first five months of 2023, the SBV bought about US$6 billion to add to foreign reserves.

Second, the country’s trade balance recorded a surplus in the first five months of this year. Although import-export turnover in the first five months of 2023 was low, the trade balance maintained a trade surplus of US$9.8 billion, a sharp increase compared to 2021 and 2022.

Third, Vietnam’s tourism industry is recovering. After three years of being affected by the COVID-19 pandemic, the number of tourists to Vietnam in the first five months of 2023 rose 13 times compared to the same period in 2022 and equivalent to 63% compared to before the pandemic in 2019.

International tourists will recover faster in the near future, especially from China in the summer and early fourth quarter of 2023. This will also be a significant source of foreign currency for the country.

Fourth, FDI has shown more positive signals. Although accumulated FDI in the first five months of 2023 decreased slightly compared to the same period last year, the data in April and May 2023 showed more positive signals thanks to the gradually improving macro factors. Though more observations are needed, Yuanta holds a positive view on FDI inflows in the medium and long term, adding this is also a significant supporting factor for the dollar flowing into Vietnam.

Fifth, the US Federal Reserve (Fed) may soon stop raising interest rates. Yuanta said though it is likely that the Fed will raise interest rates at least one more time this year, the tightening of interest rates has been loosened more and the period when the dollar was anchored at a high level as 2022 ended.

Sixth, Vietnam’s remittances are expected to continue to increase. In addition to the amount of remittances sent back to relatives that remains stable, Yuanta’s analysts expect the amount of remittances sent to invest in Vietnam will increase more when the domestic economy recovers, deposit interest rates remain at an attractive level and real estate is at low prices, while the economies in the EU and the US are recovering more slowly than in Vietnam.

With the above factors, Yuanta believes the period of strong exchange rate fluctuations in the second half of 2022 has ended and the exchange rate in the last six months of 2023 will continue to be stable and fluctuate in a range of +/- 3%, below the SBV’s prescribed range of +/- 5%.

However, Yuanta noted, a number of other factors that may put pressure on the exchange rate should be monitored, such as high inflation in developed countries, the reopening of China and the Fed’s longer-than-expected interest rate hike.

Sharing the same view, finance expert Dr. Can Van Luc said as the dollar devaluates and the US economy is forecast to have lower growth, it is likely that the Fed will not continue to raise interest rates until the end of this year, and other currencies, including the Vietnamese Dong, will appreciate again.

Luc predicted the US$/VND exchange rate for the whole of 2023 will be stable.