The fundamental factors to keep Vietnam Dong stable in recent years could exist in this year.
The USD/VND rate maintains a sideways trend in 2021 when Vietnam’s trade surplus reaches $19.1 billion, the highest level in the past 5 years. As of 12/13, the central exchange rate increased by 0.33% YTD, the interbank rate decreased slightly by -0.7% YTD, and the free rate increased sharply by 1.29% YTD. The USD/VND rate was supported mainly by the high demand for VND, for the following reasons: (1) Demand for USD fell sharply in the third quarter of 2021 due to the economic shutdown, (2) disbursed capital, and (3) foreign exchange reserves remained high after Vietnam was removed from the list of currency manipulators.
As at January 31, 2022, the State Bank of Vietnam (SBV)- set exchange rate for the USD/VND stood at 23,099, a 0.2% MoM slide, while the interbank exchange rate for USD/VND also fell 0.7% MoM. Vietnam maintained a high trade surplus of USD 1.4 billion in January 2022, which helped strengthen the Vietnam dong against the USD in January 2022.
Last week, the central rate increased by VND 29, from VND 23,090/USD to VND 23,119/USD. Conversely, the exchange rate at commercial banks increased by VND 136, from VND 22,696/USD to VND 22,832/USD. This movement further narrowed the gap between these two exchange rates, down to VND 287 at the end of last week, the lowest in six months.
Meanwhile, DXY decreased by 0.04% and closed at 96.04 points. The USD moved in different directions against other foreign currencies in the DXY basket. Accordingly, the USD depreciated by 0.36%, 0.18%, and 0.48% against the JPY, GBP, and CHF, while appreciating by 0.25%, 0.63%, and 0.12% against the EUR, SEK, and CAD.
In terms of foreign exchange supply for 2022, foreign exchange reserves could remain abundant based on the following three factors: (1) The trade surplus is expected to continue in 2022 when macroeconomic factors are still supporting Vietnam’s trade surplus trend. According to BSC calculations, this figure is estimated at 5.2–6.9 billion USD; (2) remittance sources are expected to grow at a 4.4% annual rate over the next three years, reaching USD 18.9 billion in 2022; and (3) the SBV maintains its policy of purchasing foreign currency in order to increase foreign exchange reserves.
According to VNDirect, the VND will become more neutral in 2022 for two reasons: (1) the USD may regain the upper hand in 2022 as the FED has begun to reduce the size of its bond purchasing program (QE tapering) since November 2021; and (2) inflation pressures in Vietnam may pick up since 1Q22F.According to a CME Group survey, the market expects that the FED can raise policy rates by 100-175bp in 2022, starting in March 2022.
However, VNDirect sees that the fundamental factors that kept the Vietnam Dong stable in recent years could exist in this year, including the current account surplus and higher foreign exchange reserves. “We expect the current account surplus to widen to 2.0% of GDP in 2022F from an expected deficit of 0.3% of GDP in 2021F. We also expect Vietnam’s FX reserves to reach USD122.5bn at the end of 2022 (equivalent to 4.0 months of imports) from a current level of USD105bn. As a result, we see the US dollar/VND stable at 22,600–23,050 in 2022F and the Vietnamese dong may move in a relatively narrow range compared to the USD”, VNDirect said.
BSC believed that the interbank rate would most likely be in the range of 23,100-23,200 (0.7%-1.2% in 2021) based on 2 factors: (1) FED tightens monetary policy and (2) the US removed Vietnam from the list of currency manipulators and decided to increase the bilateral trade relationship. This can ensure that exchange rate fluctuations stay below 2%.