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Disclaimer: The information provided in this article is for general informational purposes only and is not intended as investment or trading advice. While we strive to provide accurate and up-to-date insights based on our expertise in foreign exchange markets, readers should not interpret any part of this content as a recommendation to make specific financial decisions. Please consult a licensed financial advisor or professional before making any investment or hedging decisions.
Written by Senni Ang, CEO of M-DAQ Market Solutions
As most ASEAN currencies regain ground following a turbulent start to 2025, one stands apart: the Vietnamese Dong (VND). From January to June this year, the VND depreciated by 4.5% against the US Dollar, while other regional currencies have posted stronger rebounds. Its lagging performance has raised concerns among businesses operating in or trading with Vietnam.
So what’s holding the VND back? The answer lies at the intersection of US trade tensions, monetary policy, and Vietnam’s strategic role in global supply chains.
Vietnam Under the Microscope
Vietnam has become a critical node in global manufacturing, particularly as companies diversify supply chains away from China. However, this shift has brought increased attention from the US. In 2024, Vietnam became the US’ third-largest goods trade deficit partner, behind China and Mexico. This position has triggered closer scrutiny, particularly over Vietnam’s perceived role as a transshipment hub for Chinese goods seeking to bypass US tariffs.
As trade tensions escalate, Vietnam finds itself in a difficult position. It needs to maintain export competitiveness while avoiding policy moves that could invite further scrutiny. One approach has been to quietly allow the VND to weaken.
SBV’s Calculated Currency Drift
Since February this year, the State Bank of Vietnam (SBV) has gradually guided the VND lower by adjusting the daily reference rate. This policy shift aligns with the timing of new US tariffs targeting China and other major trading partners. It suggests a strategic effort to support Vietnam’s export competitiveness amidst global trade headwinds.
This approach stands in contrast to neighbouring ASEAN economies such as Malaysia, Indonesia, and Thailand, where central banks have focused more on stabilising their currencies. Vietnam’s more passive stance highlights the trade-offs its policymakers are willing to make.
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TL;DR: VND lags behind regional currencies as the central bank allows depreciation to boost exports amid US trade tensions. The result: businesses face higher FX risk and tighter compliance pressure.
Why It Matters for Business
While the VND is currently in the spotlight, it’s part of a broader pattern globally where currency movements are increasingly influenced by geopolitics, trade policies, and divergent central bank strategies. Businesses transacting across borders must now contend with growing currency divergence.
- Importers and Exporters Face Growing Asymmetries
When currencies move in different directions, businesses are exposed to uneven cost dynamics that can significantly impact profitability. Importers may face rising input costs if their local currency weakens, while exporters could temporarily benefit from improved price competitiveness. Profits could turn into losses and vice-versa, and businesses grapple with pricing decisions, contract negotiations, and the stability of cash flows. - Rising Trade and Compliance Pressures
As trade dynamics evolve, scrutiny from regulators and trade partners is also intensifying. In Vietnam’s case, currency and tariff considerations have brought greater attention to transshipment risks. But similar compliance pressures are growing region-wide, whether in the form of ESG disclosure, rules of origin enforcement, or central bank monitoring. Currency strategy now needs to go hand in hand with compliance. - More Complex Regional Operations
For platforms and businesses operating across borders, managing local pricing and collections is no longer just a matter of syncing exchange rates. Currency divergence introduces reconciliation challenges, especially when markets move in opposite directions. For example, what works in Singapore may quickly become unviable in Vietnam, Thailand, or the Philippines. A uniform strategy is no longer sufficient.
Strategic Considerations for Businesses
The VND may be this quarter’s outlier, but the broader takeaway is clear: conditions can shift quickly and businesses must be ready. Currency volatility is no longer a temporary blip; it’s a structural reality in global trade. Here are some actions to consider:
- Revisit pricing strategies regularly to ensure they reflect current exchange rate dynamics, especially for businesses operating in multiple markets.
- Build in more flexible contract terms that allow for rate adjustments or buffer periods in case of significant volatility.
- Use forward contracts to lock in rates for high-exposure transactions and improve certainty on margins and cashflow. Tools like 4XPro make it easier to hedge in line with your operational needs.
- Coordinate more closely across finance and operations, so that compliance, procurement, treasury, and regional teams are aligned in how they respond to currency movements.
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