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Vietnamese dong forecast: VND struggles to find floor against rampaging USD despite SBV stability vow

By Nicole Willing

Edited by Valerie Medleva

17:14, 30 September 2022

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Ho Chi Minh on a Vietnamese dong banknote
Will USD strength send VND to fresh lows? – Photo: tanukiphoto / Getty Images

Like other emerging markets currencies, the Vietnamese dong (VND) has fallen in value against the US dollar (USD) this year as the dollar has rallied to 20-year highs. The VND/USD exchange rate was at a low of 0.00004190 on 30 September.

A trade surplus and moves by the State Bank of Vietnam (SBV) have supported the dong against other currencies such as the euro (EUR), which is facing its own pressures stemming from the Russia-Ukraine conflict and an economic slowdown. 

What drives the value of the Vietnamese dong, and what is the outlook for the currency's future? 

In this article, we look at recent exchange rates trends and some of the latest Vietnamese dong predictions from analysts.

What affects the Vietnamese dong’s value?

The Vietnamese dong was introduced in North Vietnam in 1946 to replace the French Indochinese piastre, and became the South Vietnam currency in 1953. The two versions were unified when the country became one in 1978. The dong was revalued in September 1985 at a rate of 10 old dong to one new dong.

The State Bank of Vietnam sets the reference rate for the value of the dong against the US dollar. The dong has been devalued five times since 2014 with the aim of boosting exports and ensuring currency stability to control high inflation.

The value of the currency is influenced by Vietnam’s trade flows, foreign currency reserves, economic growth, interest rates and inflation, as well as US monetary policy. The value of the US dollar has soared in 2022 in response to the Federal Reserve (Fed) rapidly hiking interest rates in an effort to tame record inflation. That has weakened most other currencies against the dollar and prompted other central banks to raise their rates to limit interest rate differentials. 

Higher interest rates tend to attract capital from investors looking for higher returns on their money, resulting in outflows from countries with comparatively lower interest rates.

VND not immune to dollar strength

The value of the Vietnamese dong against the US dollar gradually declined from the 2014 devaluation, when it was trading around 21,000, to around 23,600 in March 2020 as investors sought the safe haven of the USD at the start of the Covid-19 pandemic. 

USD/VND 5-year chart

USD/VND 5-year chart

Source: TradingView 
Past performance is not a reliable indicator of future results

The USD/VND exchange rate then declined to 23,080 at the end of 2020 and reached 22,645 by November 2021. But the dollar’s rally in 2022 lifted the pair to a record high in September, reaching 23,513 on the last day of the month.

The SBV has been selling large amounts of US dollars from its foreign exchange reserves and has withdrawn trillions of dong through open market operations to maintain banking system liquidity and indirectly increase interbank interest rates.

Following the SBV’s net withdrawal, the overnight interbank interest rate rose by 40 basis points (bps) to 4.9% last week.

On 22 September, the SBV also raised interest rates for the first time in 11 years, increasing the refinancing, overnight lending and SBV loan rates by 100 basis points to return them to March 2020 levels. The move came after the Fed raised interest rates by another 75 basis points, prompting a number of central banks to also raise rates last week.

AUD/USD

0.67 Price
+0.670% 1D Chg, %
Long position overnight fee -0.0036%
Short position overnight fee 0.0007%
Overnight fee time 22:00 (UTC)
Spread 0.00006

USD/JPY

136.32 Price
-0.540% 1D Chg, %
Long position overnight fee 0.0051%
Short position overnight fee -0.0116%
Overnight fee time 22:00 (UTC)
Spread 0.008

GBP/JPY

166.50 Price
+0.140% 1D Chg, %
Long position overnight fee 0.0000%
Short position overnight fee -0.0001%
Overnight fee time 22:00 (UTC)
Spread 0.031

EUR/USD

1.05 Price
+0.470% 1D Chg, %
Long position overnight fee -0.0076%
Short position overnight fee 0.0030%
Overnight fee time 22:00 (UTC)
Spread 0.00006

Analysts had expected the SBV to increase rates, but 100 basis points was higher than previous hikes and higher than other countries in southeast Asia. Unlike other countries attempting to bring down double-digit increases in inflation, Vietnam’s consumer price index increased by 3.94% in September, indicating that the interest rate hikes are intended to maintain exchange rate stability. 

“The State Bank of Vietnam’s (SBV) decision to raise key policy rates by 100bp on 22 September exceeded our expectation that these rates would rise by only 50bp by end-2022. It follows a sharp rise in US interest rates and weakening global demand prospects, which have increased the risk of capital outflows and contributed to downward pressure on the Vietnamese dong, although the currency has weakened by less against the US dollar than many other APAC currencies this year,” Fitch Ratings stated on 27 September.

“We now believe that further policy rate hikes are likely in the near term, partly in order to reduce the risk that exchange-rate weakening could add to imported inflation, and further upward pressure on deposit rates is likely as US dollar interbank rates push up against dong interbank rates.”

The weakness in the Vietnamese currency is a reflection of the strength of the dollar, as the dong has strengthened against the euro, British pound sterling, Australian dollar and Japanese yen as those currencies face greater macroeconomic challenges.

A strong trade surplus has supported the dong against the euro, with the exchange rate declining to the 23,000 level from 25,800 at the start of 2022. The Australian dollar has also weakened, now buying 15,500 dong from 16,400 at the start of 2022. 

The Vietnamese economy has benefited from a shift in manufacturing out of China in response to the US-China trade war in recent years, increasing its exports of electronics, clothing and furniture.

Analysis by Malaysia-based Maybank expects Vietnam’s GDP to grow by 8% in 2022, up from a previous forecast of 6.9%, supported by retail sales on an improved labour market and the return of tourism following Covid-19 lockdowns. The bank’s 2023 GDP forecast was downgraded to 6% from 6.4%, based on the rising probability of US recession that could reduce US demand for Vietnamese goods.

What is a realistic Vietnamese dong forecast for the future? How do analysts expect the USD/VND exchange rate to perform in the context of ongoing foreign exchange market volatility?

Vietnamese dong forecast: How will the VND fare against USD and EUR?

Analysts at Japanese financial services firm Mizuho expected the US dollar to remain strong against emerging market currencies:

“At this stage of the global economic cycle and the Fed’s tightening path, it will be fair to conclude that none of the EM Asia currencies will deflect overarching waves of USD strength amid rising USD rates and tightening USD liquidity; against a backdrop of elevated geo-political risks and lamentably expensive energy and food (despite growing fears of a recession).

In fact, if sharp CNY correction persists, intervention to backstop JPY proves futile and KRW continues to lurch, then pressures for a deeper correction across the board in EM Asia FX may be a matter of “when”, not “if”. Fact is, credit and currency risks could quickly ripple across what are fairly proximate, high-transmission, trade and investment channels in EM Asia.”

Mizuho’s Vietnamese dong forecast for 2022 indicates that the USD/VND pair could trade in a 23,300-24,200 range during the fourth quarter and end the year at 23,700. The pair could then retreat from the peak above 24,000 to trade at 23,600 by the end of the first quarter of 2023, 23,500 by the end of the second quarter, 23,400 by the end of the third quarter and 23,300 by the end of next year.

“Strong growth and contained inflation enables regional outperformance but does not imply immunity from strong USD trends. Especially as CNY and KRW rumble pressures for now,” the analysts wrote in reference to the VND.

Analysts at Maybank noted at the end of August that USD strength “has persisted for a tad longer than expected… While the VND’s support from trade surplus may not be entirely relied on given weakening external demand, we like to remain constructive on the VND based on its strong economic outlook that can continue to sustain inflows (portfolio/direct investment).”

At the time of writing (30 September), the Vietnamese dong forecast from data aggregator Trading Economics indicated that the USD/VND pair could rise to 24,005.70 in one year, from 23,775.80 at the end of Q3 2022, based on global macro model projections and analysts’ expectations.

The VND forecast against the euro from Trading Economics indicated that the EUR/VND pair could move down to 22,011 in one year, from 22,714.40 at the end of the third quarter.

The forecast for 2025 from algorithm-based forecasting service Wallet Investor was bearish on the outlook for the euro against the Vietnamese currency, predicting that the exchange rate would fall from 22,619.53 to 21,616.17 at the end of 2022. Analysts have yet to issue a Vietnamese dong forecast for 2030.

Are you looking for a Vietnamese dong forecast to inform your trading? It’s important to remember that currency markets are highly volatile, making it difficult for analysts and algorithm-based forecasters to come up with accurate long-term predictions.

We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose.

FAQs

Is VND a good investment?

Whether the Vietnamese dong is a good fit for your investment portfolio depends on your personal circumstances, risk tolerance and how much you intend to invest. You should do your own research to develop a view of the currency as an investment. And never invest money that you cannot afford to lose.

Will Vietnamese dong go up or down?

The direction of the dong could depend on the strength of the US dollar, how demand for exports from Vietnam are affected by a slowing global economy, and monetary policy in Vietnam, among other factors.

How stable is the Vietnamese dong?

The Vietnamese government aims to keep the value of the dong relatively stable to encourage exports and foreign investment. Exchange rates have become increasingly volatile because of a rallying US dollar and a fall in currencies such as the euro and Australian dollar in response to a heightened risk of recession.

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