In Standard Chartered ‘s latest FX Alert entitled “ASEAN FX – Revising forecasts”, Standard Chartered Bank suggests that the recent rally in the CNY is likely to lead to further VND gains given the strong correlation. As such, the Bank slightly adjusts its short-term USD-VND forecasts lower.
The Bank now forecasts USD-VND at 23,200 by end-Q1-2023 (from 24,000 prior) and at 23,500 for mid-2023 (from 23,800 previously). Its H2-2023 USD-VND forecasts remain unchanged. An improving C/A backdrop and tourism recovery is likely to be supportive of the VND. Standard Chartered Bank expect FX volatility to remain elevated; a wider trading band allows for more FX flexibility.
According to Standard Chartered’s FX Alert, the combination of (1) an earlier-than-expected China reopening, (2) signs of softening inflationary pressures in the US, and (3) one-way market positioning have led to a sharp rally in ASEAN currencies versus the USD in recent months. However, the performance has diverged significantly within the region. For instance, while USD - THB, which is a proxy for the China reopening theme, has declined c.15% since late October, USD-IDR and USD-INR are roughly unchanged. The Bank expects such uneven performance to continue and lead to relative-value opportunities within the region against a backdrop of a more nuanced outlook for the USD. Broadly, the Bank revises its FX forecasts lower to take into account the positive themes that have emerged in recent weeks, particularly the reopening in China.
Standard Chartered Bank expects Vietnam’s strong growth of 7.2% in 2023 and 6.7% in 2024, following a solid recovery to 8.0% in 2022.
The forecast is highlighted in the Bank’s recently published global research report on Vietnam titled “Vietnam – Still enjoying high-growth status”.
“We still have conviction on Vietnam’s high growth potential over the medium term.” said Tim Leelahaphan, Economist for Thailand and Vietnam, Standard Chartered, “While macro indicators moderated somewhat in Quarter 4 2022, they remain largely robust. Retail sales posted solid growth in the second half of 2022, implying improved domestic activity.”
According to Standard Chartered’s economists, trade balance has tentatively improved; exports may face global headwinds; imports at risk of reversal. FDI disbursements have continued to increase, but the outlook hinges on the global economy. Inflation may pose a threat to Vietnam’s continued recovery.
Inflation is anticipated to rise throughout 2023, potentially reaching c.6% in the final months of the year and averaging 5.5% in both 2023 and 2024 (from 3.2% in 2022). Vietnam’s fiscal deficit may persist and be a source of inflation.
Standard Chartered Bank expects the State Bank of Vietnam (SBV) to hike by another 100bps in Quarter 1 2023 and to stay on hold through end-2024 as it shifts to a tightening stance with a view to maintaining stability.
“We expect the central bank to stay vigilant against inflation, a weakening Vietnamese dong (VND), and financial instability arising from risky loans in the real-estate sector. The SBV may prefer a relatively strong VND, as long as it does not harm the country’s trade competitiveness.” said Tim Leelahaphan, Economist for Thailand and Vietnam, Standard Chartered
According to Tim, the VND has recovered sharply in recent weeks, however, the pace of VND appreciation is likely to slow down, as several headwinds persist. The replenishment of FX reserves is likely to be a key priority for the central bank. An improving Current Account backdrop and tourism recovery is likely to be supportive to the VND. USD-VND is forecast at 23,400 by end-2023 and 23,000 by end-2024.
