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Vietnamese đồng to strengthen in 2021: VNDirect Securities

The Vietnamese đồng will remain stable for the rest of the year but may appreciate by 0.5 per cent in 2021, VNDirect Securities Corp forecast.

The State Bank of Việt Nam (SBV) on October 30 set its exchange rate between the đồng and the US dollar at VNĐ23,201 per dollar, up 0.2 per cent year-to-date, while the exchange rate on the free market rose at a similar pace.

The đồng has been strongly supported by the higher trade surplus and foreign reserves, VNDirect said.

Việt Nam’s exports increased by 4.7 per cent year on year in January-October despite the tightening of global trade amid the COVID-19 pandemic, while imports rose at a slower pace of 0.6 per cent on-year.

The rapid increase of exports and slow gain of imports made the 10-month trade surplus double last year’s number to US$18.7 billion.

The country’s reserves rose to US$92 billion in late August from around $80 billion at the end of last year. The figure is expected to reach $100 billion at the end of this year, according to the SBV.

The expansion of foreign reserves “should be supportive of the Vietnamese đồng” and the local currency should “remain stable at current level towards the end of 2020,” VNDirect said.

“The VNĐ may move within the range of 0.5 per cent on either side,” VNDirect forecast, adding there will be more upside risks for the đồng in 2021.

Among high upside risks that could affect the Vietnamese đồng in 2021 are central banks’ money easing policies and the appreciation of the Chinese yuan, the company said.

With the Federal Reserve planning to keep its interest rates near zero per cent until at least 2023 and allow a period of higher inflation, the US dollar should remain weak in 2021, the brokerage said.

The Chinese yuan is projected to stay strong because the world’s second-largest economy would continue to outperform others in 2021 and its trade surplus would widen, VNDirect said.

In addition, the strong recovery of the Vietnamese economy amid the COVID-19 pandemic would also be a factor that may boost the value of the đồng on global markets, VNDirect said.

A double-edged sword

A stronger Vietnamese đồng would encourage foreign capital to flow into Việt Nam, ease Việt Nam’s dollar-denominated debt payment burdens, and temper the arguments over trade imbalance and currency manipulation with the US, VNDirect said.

In the first 10 months of the year, foreign direct investment (FDI) flowing into Việt Nam slowed down amid the COVID-19 pandemic.

According to the General Statistics Office, the disbursed capital of FDI projects in January-October slid 2.5 per cent on-year to $15.8 billion and registered capital of FDI projects dropped 19.4 per cent on-year to $23.5 billion.

In terms of foreign indirect investment (FII), foreign investors net-sold a total of $560 million worth of Vietnamese shares and assets in 10 months.

But in the future, the global economic and business environment may improve as the coronavirus spread has been contained well in some countries, such as Việt Nam.

Việt Nam would see the huge inflow of foreign capital in 2021 thanks to positive economic growth prospects and the relocation of manufacturing facilities from China due to the US-China trade war, VNDirect said.

“On the negative side, the strengthening of the VNĐ will slightly soften the competitiveness of Vietnamese exports, especially agriculture products, raw materials and unprocessed goods,” the company said.

But if the Chinese yuan keeps growing stronger, the burden could be offset, VNDirect said.

“In addition, the strengthening of the VNĐ could make imported goods cheaper, thereby stimulating local consumer demand for imported goods and causing the trade surplus to shrink.” — VNS

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