During roundtable discussions held on May 23, themed “Market Outlook and Investment Strategy” in HCMC, Dinh Duc Quang, managing director of the United Overseas Bank (UOB)’s Currency Business Division, noted that high U.S. Federal Reserve (Fed) funds rates (above 5%) are exerting pressure on most major global and Southeast Asian currencies, including the Vietnamese dong.
Abel Lim, head of Wealth Management, Advisory, and Strategy at UOB, said that a potential Fed rate cut later this year could reduce dollar strength and aid the recovery of the dong.
Despite expectations of a cooling exchange rate, experts advised businesses to use risk-hedging tools and carefully consider foreign currency loan terms.
“Increased inflation this year has signaled the U.S. Federal Reserve to maintain high interest rates longer. Rate cuts are expected only when inflation slows to 2%. This scenario has strengthened the dollar, weakening Asian currencies, including the Vietnamese dong,” Lim said.
However, UOB anticipates that the Fed will cut rates twice this year, in September and December, while the State Bank of Vietnam may keep rates steady. This could reduce dollar strength and allow the dong to recover to the VND24,000 per dollar threshold by the end of 2024.
UOB’s report forecast a potential appreciation of the Vietnamese dong and other currencies against the dollar in the second half of 2024 if Fed rates are cut. Vietnamese dong interest rates are unlikely to decrease further and may rise again.
“We expect savings rates to increase by 0.5-1.0 percentage points across different terms from May to the end of 2024,” Quang said.
Vietnam’s role in the global supply chain, diverse production structure, and young workforce support economic growth, Quang added. Despite short-term challenges, solid fundamentals and the recovery of the Chinese yuan will also bolster the dong, he noted.
Saigon Times