Flexible and proactive when exchange rates still fluctuate in 2025

USD Index developments from the beginning of 2024 to December 23, 2024. Source: Internet.

Exchange rate still has many "stormy" times

According to many economic experts, US President Donald Trump's view in the next term is to maintain the strength of the USD compared to other major currencies in the world. So no matter what the Fed's moves are, many even predict that the Fed will be more cautious in 2025 when Mr. Trump officially takes office, the USD is still likely to stay high, if the USD Index increases, the domestic foreign exchange rate is at risk of increasing sharply.

As of the morning trading session on December 23, 2024, Vietnam time, the USD Index measuring the strength of the USD against major currencies is anchored at 107.7 points, although it has decreased compared to the peak of 108.4 points on December 19, 2024 - the highest level since June 2022, but has also increased by 1.26 points compared to the beginning of December 2024, a sharp increase compared to the level of over 102 points in early 2024.

World developments have also pushed up the domestic USD price. Currently, the USD exchange rate at Vietcombank is at 25,200-25,530 VND/USD (buy - sell), slightly down compared to the session at the end of last week, but compared to the time before the Fed raised interest rates, it has increased by 45 VND in both directions. Compared to the beginning of 2024, the USD exchange rate has increased by nearly 4.8%.

The domestic exchange rate movement near the end of 2024 has shown that it has gone through many "storms". At the middle of the year, the USD and VND exchange rates increased by 5% but gradually cooled down when the Fed reduced interest rates by 0.5% in September 2024. Entering the third quarter of 2024, the USD exchange rate gradually increased again following the increase in the USD price in the world, forcing the State Bank (SBV) to sell foreign currency to intervene in the market.

Up to now, the exchange rate has also slowed down. According to experts, this result was achieved thanks to the SBV's management solutions. According to research by experts from Pinetree Securities Company, from December 18, 2024 to now, the SBV has sold a total of nearly 2 billion USD.

According to the report on the results of monetary policy management in 2024 of the State Bank, the exchange rate has been flexibly and appropriately managed, contributing to absorbing external shocks; at the same time, monetary policy tools have been synchronously coordinated. As a result, the foreign exchange market has remained stable, foreign exchange liquidity has been smooth, the economy's foreign exchange needs have been fully met; the exchange rate has moved flexibly in both directions, increasing/decreasing, in accordance with market conditions.

Flexible policies, businesses must be proactive

Forecasting for 2025 and the coming time, many experts believe that the foreign exchange market in Vietnam will still be under a lot of pressure. In a recently published report, UOB Bank said that despite having a solid foundation, VND is still "held back" by external factors such as the USD recovering when the market revalues ​​with the scenario that the Fed will cut interest rates less in President Donald Trump's second term.

In addition to being affected by external factors, the USD/VND exchange rate is likely to be affected by internal factors as monetary policy will continue to be loosened to support economic growth.

According to the latest data from the General Department of Customs, from the beginning of the year to December 15, 2024, the total import turnover of the whole country reached 361.78 billion USD, an increase of 15.7% over the same period in 2023. Thus, the average import value per week is more than 7.86 billion USD. Meanwhile, according to the assessment criteria of the International Monetary Fund (IMF), the scale of foreign exchange reserves must be equivalent to 12-14 weeks of imports. With foreign exchange reserves in Vietnam predicted to be about 87 billion USD, in theory, this level is still much lower than the international recommendation.

For businesses, when the exchange rate fluctuates strongly, not only businesses that import or borrow a lot of USD will be negatively affected by having to bear additional costs, but also exporting businesses will not enjoy many benefits, because most of the machinery, equipment and raw materials for production for export must be imported.

Mr. Bui Tien Vinh, Chairman of the Board of Directors of Vietnam Pharmaceutical and Food Joint Stock Company, shared that if the USD increases, in the long term it will not be good for businesses because many factors are affected, from increased input costs or having to adjust selling prices in export markets... This is also a concern of many businesses because it is currently the peak production season for orders for the new year.

But in the immediate future, the domestic foreign exchange market has been, is and will be supported by many positive factors. In particular, according to data from the General Department of Customs, the total import-export turnover of the whole country reached 747.13 billion USD, an increase of 14.7% over the same period in 2023, Vietnam continued to have a trade surplus of 23.57 billion USD - creating a large source of foreign currency for the market.

Along with that, experts predict that in 2024, the country's remittances will reach about 19 billion USD, a record high achieved in 2022. Regarding investment and disbursement of FDI capital, according to the forecast of the representative of the Ministry of Planning and Investment, FDI attraction in 2024 could reach 39-40 billion USD, higher than the same period in 2023. With major investment and cooperation plans just opened at the end of 2024 such as the historic handshake between Vietnam and NVIDIA - the world's leading technology corporation, along with many technology companies looking for locations and personnel for investment activities in Vietnam... it is forecasted that 2025 will record a continued strong increase in FDI investment capital.

With intertwined opportunities and challenges, Dr. Chau Dinh Linh, Lecturer of the Faculty of Business Administration, Banking University of Ho Chi Minh City, said that the State Bank must be flexible and have many scenarios to respond to exchange rate developments. Because if the exchange rate increases, the target of continuing to reduce interest rates set by the Government and the State Bank will be difficult to achieve, so there must be harmonious management, and at some points the State Bank may even have to raise interest rates to cool down the exchange rate.

In 2025, the State Bank's report also emphasized that it will continue to closely monitor the market situation to flexibly and appropriately manage the exchange rate, coordinate synchronously with monetary policy tools, contributing to controlling inflation and stabilizing the macro economy.

On the business side, experts recommend that businesses need to continuously monitor exchange rate fluctuations to be able to choose export and import markets and diversify, choose a favorable payment currency, and gradually reduce the use of only USD. To prevent exchange rate risks, businesses can choose banks with the ability to finance trade, use derivative financial instruments such as foreign currency forward trading, swap contracts (SWAP), etc.