Fiscal measures to be based on upcoming US status

Will a USD rally and gold price decline be likely to persist in the short- or long-term?

Our baseline view is that the USD will strengthen in 2025 but weaken early in the year. The USD may face a period of weakness early in 2025 due to continued US Fed rate cuts and uncertainty about policy implementation. Growth headwinds from the rapid rate hikes and USD strength since October may further pressure the currency.

Once fiscal and tariff measures under the next US administration are clarified and implemented, likely in the second half of 2025, the USD is expected to strengthen. Persistent inflation and growth trends will play key roles in shaping foreign exchange market preferences, with a focus on rate differentials and structural drivers like productivity.

In the long term, the sustainability of macro-stimulus measures will influence USD strength. Foreign and domestic investors might prefer inflation-protected assets if inflation uncertainty persists.

Standard Chartered Vietnam’s CEO and head of Banking & Coverage Nguyen Thuy Hanh

Are all these developments related to the incoming US president, and what challenges await the USD?

USD strength is influenced by Donald Trump’s fiscal and tariff policies, which are expected to drive higher real yields.

However, the strength is not necessarily an endorsement of these policies but a response to higher debt accumulation and restrictive monetary policy.

Policy uncertainty, including the timing and impact of fiscal and tariff measures, could hinder USD momentum. Growth headwinds from the recent USD rally and rate hikes may emerge, reducing investor confidence in sustained strength.

If inflation rises unexpectedly or fiscal measures are delayed, the USD could face additional pressures.

How does the appreciation of the USD affect currencies in the Asian region, specifically VND?

A stronger USD poses challenges for Asian currencies by increasing rate differentials, especially for economies with weaker growth outlooks.

For currencies like those in Indonesia and the Philippines, higher US rates could exacerbate pressure, potentially slowing local monetary easing cycles.

Recent Fed rate cuts were expected to support Asian currencies, including the VND. However, stronger-than-anticipated US economic data has led to a less supportive environment for Asian foreign exchange. Trade policy uncertainties and inflation-inducing measures under the new US president could further complicate currency stability in the region.

What scenarios should Vietnam prepare for the USD appreciation and its impact on VND, and what factors support currency stability?

Vietnam should anticipate potential capital outflows if US rates remain high. Uncertainty around trade policies and global economic growth could further pressure the VND.

Standard Chartered forecasts Fed rate cuts, which should lead to a softer-USD bias over the next few quarters, will result in an exchange rate of USD/VND at 25,250 by the end of 2024 and 25,450 by Q2 next year.

Factors supporting VND stability may include recovery in Vietnam’s trade surplus ($3 billion per month since June), increased net foreign direct investment inflow in recent quarters, a strong tourism rebound providing additional USD proceeds, and lower US rates, which could help stem capital outflows and support currency stability.