FX Daily: No big bets ahead of FOMC, VND’s depreciation

VND fell 3.1% YTD on Monday vs. full-year 3.4% depreciation in 2022.
Group Research, Philip Wee19 Sep 2023
    Photo credit: Unsplash/Adobe Stock Photo

    Markets muted ahead of Wednesday’s FOMC meeting. S&P 500 and Nasdaq Composite initially rallied by 0.4% and 0.3% but ended the session flat. The US Treasury 2Y yield edged up by 2.1 bps to 5.05% while the 10Y yield eased 3 bps to 4.30%. DXY depreciated modestly by 0.1% to 105.2 after a nine-week rally. US Treasury Secretary Janet Yellen did not see any signs that the US economy was at risk of a downturn, pleased that inflation was cooling amid a less overheated labour market. Despite Yellen’s assessment of a soft landing, investors were reluctant to take big bets ahead of a potentially volatile FOMC meeting. Last week, the European Central Bank meeting unsettled markets in two regards. First, the ECB surprised with a hike despite the consensus for a pause. Second, the EUR sold off on the hike, which markets deemed as dovish. Given the relative strength of the US economy vs. the Eurozone, investors are not ruling out a surprise Fed hike or the markets labelling the pause (consensus) as hawkish.

    VND depreciated most on Monday by 0.5% to 24,376 per USD, its worst close since early December. VND has depreciated 3.1% YTD this year, comparable to its full-year depreciation of 3.4% last year. Since May, the VND did not buck the currency depreciation in its largest Asian trading partners, i.e., CNY, KRW, and JPY. After four rate cuts to cushion the Vietnamese economy, the VND is vulnerable to a potentially hawkish FOMC meeting this Wednesday. The odds for the Vietnamese economy to meet its official growth target of 6.5% for 2023 have lessened. Real GDP growth slowed from a robust 8% (Asia’s strongest) in 2022 to 3.7% in 1H23 from weakened global demand, the broad anti-corruption campaign, and the property downturn. In August, the World Bank moderated Vietnam’s growth forecast to 4.7% in 2023, 5.5% in 2024, and 6% in 2025. Rating agencies were divided over the troubled property sector. Fitch saw a lesser risk of the property sector’s saddling the government, but S&P reckoned the troubles could spill over into the banking sector.

    Quote of the day
    “Success seems to be largely a matter of hanging on after others have let go.”
         William Feather

    19 September in history
    The Royal Thai Army staged a coup d’état against the government of Prime Minister Thaksin Shinawatra in 2006.


    Philip Wee

    Senior FX Strategist - G3 & Asia


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