USD/VND Exchange Rate Surges Despite Global Dollar Weakness: Understanding the Causes and Impact

Have you noticed gas prices and imported goods rising even as the US dollar weakens globally? Why is our currency losing value in this seemingly contradictory scenario?

The central exchange rate now stands at approximately 25,091 VND/USD according to the State Bank of Vietnam (SBV), while commercial banks like Vietcombank quote 25,915 - 26,305 VND/USD (buy - sell rates). The intriguing paradox here is that the DXY index currently sits at 97.316 points, down 9.97% since the beginning of 2025 - its lowest level in years. So what's happening with Vietnam's currency?

SBV Maintains Low Interest Rates – The Price of Growth

According to Pham Chi Quang, Director of the Monetary Policy Department at SBV, maintaining currency strength requires attractiveness, and that appeal comes partly through interest rates. However, SBV has implemented policies aimed at maintaining low interest rates to support economic growth.

Specifically, VND interbank rates currently hover around 4.6-4.8% annually, while global USD rates remain higher. This low VND interest rate environment has created a negative interest rate differential between VND and USD, making USD more attractive to investors.

This represents a classic "double-edged sword" - stimulating economic growth on one hand while pressuring exchange rates on the other as investors seek higher returns elsewhere.

Foreign Selling Pressure and Debt Payment Obligations

2024 witnessed over USD 3.5 billion in net foreign selling, creating significant pressure on the forex market. More critically, November 2024 required substantial foreign currency allocation for the Ministry of Finance to repay over USD 1.5 billion in foreign debt.

Combined, these two sudden foreign currency outflows totaled approximately USD 5.1 billion, creating intense pressure in Q4 2024. When foreign investors withdraw capital, they need to convert VND to USD for repatriation, adding selling pressure on the Vietnamese dong.

According to VDSC estimates, SBV had to sell approximately USD 9.4 billion in 2024 to stabilize exchange rates, reducing foreign reserves to around USD 80 billion.

Global USD Weakens, But VND Weakens More

The notable paradox is that USD has weakened internationally due to concerns about the US economic situation and uncertain tariff policies from the Trump administration. The DXY index has fallen to its lowest level in over three years.

However, VND has depreciated more severely due to domestic factors:

• Unfavorable interest rate differentials: VND offers lower yields than USD
• Net foreign capital outflows: Creating strong selling pressure on VND
• Increased USD demand: For import payments and foreign debt obligations