Vietnamese Dong Depreciation
Since late April, the VND stands out as one of the weakest currencies in the region, despite a general recovery trend among other Asian currencies in Q2 2025. The dong has depreciated over 2.7% since the start of the quarter, even touching a new record low of approximately VND 26,300 per USD at one point. This contrasts sharply with the international USD market, where the USD Index has seen a significant decline.
The Puzzle: VND Weakens While Asian Peers Recover
Since late April, the VND stands out as one of the weakest currencies in the region, despite a general recovery trend among other Asian currencies in Q2 2025. The dong has depreciated over 2.7% since the start of the quarter, even touching a new record low of approximately VND 26,300 per USD at one point. This contrasts sharply with the international USD market, where the USD Index has seen a significant decline.
Key Drivers of VND Depreciation
Financial analysts point to several interconnected factors explaining the VND’s recent depreciation:
- Increased Domestic USD Demand (Seasonal & Pre-Tariff):
- Ms. Bui Thi Thao Ly, Director of Analysis at Shinhan Securities Vietnam (SSV), suggests a surge in domestic USD demand. This could be due to a sharp increase in import-export activities ahead of potential tariff implementations.
- Evidence: This hypothesis is supported by robust export growth of 14% and import growth of 17.5% in the first five months of the year, indicating a heightened need for foreign currency to facilitate trade. This demand is considered partially seasonal. Ms. Ly anticipates that the exchange rate may cool down in tandem with the USD Index’s movements.
- State Treasury’s USD Purchases:
- Statistics show that the State Treasury has purchased nearly USD 1.9 billion since the beginning of the year.
- Analysts at Rồng Việt Securities (VDSC) note that these continuous USD purchases have significantly reduced the foreign currency reserves within the system, dropping to approximately USD 750 million by mid-June. This reduction in the system’s foreign currency “buffer” can exert downward pressure on the VND.
- Deteriorating Economic Outlook (Driven by Tariff Uncertainty):
- Experts from UOB Bank attribute the VND’s short-term weakness to a less optimistic economic outlook, primarily influenced by the impact of ongoing tariff policies.
- Vietnam’s Trade Dependency: Given Vietnam’s high dependence on trade (exports account for around 90% of GDP), and with the US market alone constituting about 30% of total export turnover, uncertainties surrounding US-Vietnam trade talks have a substantial impact.
- Concentrated Exports: Vietnam’s exports are highly concentrated in key industries like electronics, furniture, textiles, and footwear (comprising about 80% of total exports to the US), making the economy vulnerable to changes in trade policy affecting these sectors.
- Revised Growth Forecasts: UOB has lowered its full-year economic growth forecast for Vietnam to 6% in 2025 and 6.3% in 2026, reflecting this cautious view.
Outlook: Short-Term Weakness, Potential Long-Term Recovery
- Near-Term Pressure: If US-Vietnam trade negotiations do not show clear progress, it could continue to exert pressure on the VND in the short term. The lower economic growth expectations, according to UOB, suggest the VND will likely remain in a weak trading range against the USD until the end of Q3 this year.
- Potential Q4 Recovery: However, UOB’s analysis group anticipates that the VND could begin to recover its momentum from Q4 2025 onwards, aligning with the general improvement trend of other Asian currencies as trade uncertainties gradually subside. UOB forecasts the VND to strengthen to VND 26,100/USD by the end of this year, VND 25,900 in early Q1 next year, and VND 25,700 in Q2 2026.
- Conditions for Recovery: VDSC analysts share a similar view, suggesting that exchange rate pressure could ease if negotiation outcomes are favorable and if the State Bank of Vietnam (SBV) intervenes in the open market to narrow the VND-USD interest rate differential.
- Lingering Supply-Demand Tension: VDSC cautions that the foreign currency supply-demand balance will remain tight in the second half of this year as the trade surplus has been shrinking. Shifts in foreign investment flows once tariff issues become clearer, coupled with growth pressures leading to increased credit and public investment, could raise inflation expectations and consequently boost demand for holding USD.
How Henrison Law Can Assist
Understanding the macroeconomic factors influencing the VND’s stability is crucial for businesses with international trade, foreign currency exposure, or cross-border investments in Vietnam. While Henrison Law does not provide financial forecasting, we offer comprehensive legal guidance to help mitigate risks associated with currency fluctuations and trade policy changes.
Our services include:
- Trade Law Advisory: Guidance on import/export regulations, potential tariff impacts, and international trade agreements.
- Investment Structuring: Advising on optimal investment structures to manage foreign exchange risks.
- Contract Review: Ensuring cross-border contracts include appropriate clauses to mitigate currency volatility.
- Dispute Resolution: Assisting in resolving commercial disputes arising from unforeseen economic shifts.
- Regulatory Compliance: Keeping clients updated on central bank policies and other regulations affecting foreign exchange.
Stay informed about these pivotal economic developments. Contact Henrison Law today for tailored advice on how to legally safeguard your business interests amidst Vietnam’s evolving economic landscape.
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