Hanoi (VNS/VNA) - The Vietnamese dong will remain stable forthe rest of the year but may appreciate by 0.5 percent in 2021, VNDirectSecurities Corp forecast.

The State Bank of Vietnam (SBV) on October 30 set its exchange rate between the dongand the US dollar at 23,201 VND per dollar, up 0.2 percent year-to-date, whilethe exchange rate on the free market rose at a similar pace.

The dong has been strongly supported by the higher trade surplus andforeign reserves, VNDirect said.

Vietnam’s exports increased by 4.7 percent year on year in January-Octoberdespite the tightening of global trade amid the COVID-19 pandemic, whileimports rose at a slower pace of 0.6 percent on-year.

The rapid increase of exports and slow gain of imports made the 10-month tradesurplus double last year’s number to 18.7 billion USD.

The country’s reserves rose to 92 billion USD in late August from around 80billion USD at the end of last year. The figure is expected to reach 100billion USD at the end of this year, according to the SBV.

The expansion of foreign reserves “should be supportive of the Vietnamese dong”and the local currency should “remain stable at current level towards the endof 2020,” VNDirect said.

“The VND may move within the range of 0.5 percent on either side,” VNDirectforecast, adding there will be more upside risks for the dong in 2021.

Among high upside risks that could affect the Vietnamese dong in 2021 arecentral banks’ money easing policies and the appreciation of the Chinese yuan,the company said.

With the Federal Reserve planning to keep its interest rates near zero percentuntil at least 2023 and allow a period of higher inflation, the US dollarshould remain weak in 2021, the brokerage said.

The Chinese yuan is projected to stay strong because the world’s second-largesteconomy would continue to outperform others in 2021 and its trade surplus wouldwiden, VNDirect said.

In addition, the strong recovery of the Vietnamese economy amid the COVID-19pandemic would also be a factor that may boost the value of the dong onglobal markets, VNDirect said.

A stronger Vietnamese dong would encourage foreign capital to flow into Vietnam,ease its dollar-denominated debt payment burdens, and temper the arguments overtrade imbalance and currency manipulation with the US, VNDirect said.

In the first 10 months of the year, foreign direct investment (FDI) flowinginto Vietnam slowed down amid the COVID-19 pandemic.

According to the General Statistics Office, the disbursed capital of FDIprojects in January-October slid 2.5 percent on-year to 15.8 billion USD andregistered capital of FDI projects dropped 19.4 percent on-year to 23.5 billionUSD.

In terms of foreign indirect investment (FII), foreign investors net-sold atotal of 560 million USD worth of Vietnamese shares and assets in 10 months.

But in the future, the global economic and business environment may improve asthe coronavirus spread has been contained well in some countries, such asVietnam.

Vietnam would see the huge inflow of foreign capital in 2021 thanks to positiveeconomic growth prospects and the relocation of manufacturing facilities fromChina due to the US-China trade war, VNDirect said.

“On the negative side, the strengthening of the VND will slightly soften thecompetitiveness of Vietnamese exports, especially agriculture products, rawmaterials and unprocessed goods,” the company said.

But if the Chinese yuan keeps growing stronger, the burden could be offset,VNDirect said.

“In addition, the strengthening of the VND could make imported goods cheaper,thereby stimulating local consumer demand for imported goods and causing thetrade surplus to shrink.”/.