Between Two Breaths of the Fed: Vietnam at the Crossroads of Exchange Rates and Capital Flows

Global Context – The Fed’s Ambiguous Pause

The world’s attention is fixed on the U.S. Federal Reserve, whose policy path will define the tone for global liquidity. With only two potential rate cuts left for the year, the upcoming CPI data will determine whether the Fed is ready to declare the tightening cycle over.
If the Fed remains less dovish, the U.S. dollar could strengthen again, tightening global financial conditions and putting renewed pressure on emerging-market currencies, including the Vietnamese dong. Conversely, a softer tone from the Fed could relieve dollar strength, giving Vietnam’s central bank (SBV) room to keep policy rates stable—supporting private-sector recovery that remains fragile after years of high borrowing costs and global shocks.

U.S.–China Tensions – Surface Calm, Structural Rivalry

Talks between Washington and Beijing have resumed over trade, rare-earth exports, and restrictions on high-tech software and semiconductors. Yet, beneath the surface, the rivalry is structural—rooted in supply-chain dominance and strategic influence rather than tariffs alone.
A full resolution is improbable; the realistic objective is to avoid escalation beyond the red lines. Should tensions intensify, the U.S. may extend its containment strategy by blocking re-routed Chinese exports through intermediaries such as Vietnam or Mexico, potentially disrupting Vietnam’s export flow and reducing U.S.-dollar inflows from FDI and trade.
With Vietnam’s foreign-exchange reserves still thin, any shock to these inflows could temporarily weaken confidence in the dong. On the other hand, a stable geopolitical environment could allow Vietnam to capture relocating FDI from China—if managed with diplomatic finesse and regulatory clarity.

Interest-Rate Dynamics – Seasonal Tightness, Strategic Easing

Domestically, Vietnam continues to pursue a cautious easing bias, maintaining supportive liquidity as long as the exchange rate remains under control. Short-term interbank rates have risen due to seasonal factors—quarter-end repayments, rising working-capital demand, and pre-Tet (Lunar New Year) production cycles.
While this temporary tightening may dent short-term sentiment in equities, it does not signal a shift in policy stance. SBV’s overarching goal remains to sustain credit growth for the real economy, while balancing inflation and currency stability.

Capital Flows and Market Sentiment

Foreign investors have sold a net ₫95 trillion in equities this year—marking a prolonged withdrawal. This is not merely profit-taking but part of a global reallocation toward advanced-market opportunities in AI and semiconductor sectors, where momentum and liquidity are far stronger.
The consequence for Vietnam is two-fold:

• Large-cap stocks face valuation compression and selling pressure.

• Market liquidity continues to thin, reducing domestic momentum.

Meanwhile, margin debt at local brokerages has reached record levels—once seen as optimism, it now represents latent selling pressure. As stock prices stagnate, interest costs accumulate, forcing leveraged investors to unwind positions, further straining liquidity.

Strategic Outlook

Vietnam’s market is entering a transition phase—no longer driven purely by domestic optimism, yet not collapsing under global stress. Investors should maintain a flexible defensive posture, focusing on fundamentally strong, liquid stocks while limiting leverage.
Rather than chasing momentum, this is a time to re-establish strategic positions ahead of the next policy-driven cycle. The winners in this stage will not be those who move fastest, but those who stay disciplined when others hesitate.