According to the capital market report of the week from May 27th to 31st by Saigon Securities Incorporation (SSI) Retail Research, the political fluctuations made the British Pound and euro to depreciate by 0.8 percent on the first four days of the last week, and supported the Dollar index (DXY) to increase to 98 before falling to 97.75 points, after the US President Trump declaring a five percent tax on commodity imported from Mexico from June 10th. Closing the week, the euro/US dollar exchange rate and British Pound/US dollar exchange rate were respectively 1.117 and 1.2632, down by respectively 0.3 percent and 0.6 percent against the US dollar.
Meanwhile, the People’s Bank of China (PBoC)’s warning to the Chinese yuan short-sellers of pledging to stabilise the exchange rate along with a statement of not labelling “currency manipulator” on any currency, including Chinese yuan and US dollar helped the Chinese yuan level off around 6.9 yuan, closing the week at 6.9051 Chinese yuan per US dollar.
SSI Retail Research analysts said that the above developments of the international market have helped reduce the pressure on domestic exchange rate.
In the past week, after one week of strong increase, the US dollar/dong exchange rate continued to increase by 25 dong per US dollar at banks, reaching 23,360/23,480 dong per US dollar (buying/selling); and remained fairly stable at 23,415/23,430 dong per US dollar on the free market. In May, the US dollar/dong exchange rate has increased by 0.6 percent at banks and 0.4 percent on the free market, while the US dollar/Chinese yuan has rose up by 2.53 percent. The central reference rate has increased by a total of 1.05 percent but the State Bank of Vietnam (SBV) has continuously sent a message of being willing to make intervention to stabilise the market.
In another development, the recent report evaluating the possibility of Chinese yuan devaluation by Dr Can Van Luc and the author group of BIDV Research and Training Institute pointed out that the possibility is not large due to three reasons including the concern about capital flight as what occurred in 2015, China does not want to be considered as a currency manipulator which can cause further tension in the trade war, and China remains steadfast in the process of Chinese yuan internationalisation.
In the medium and long-term, the US dollar/dong exchange rate will depend mainly on macro factors such as GDP, overall balance of payments status, trade balance, FDI attraction, gold price, etc., and the close management as well as appropriate moves of the SBV. However, since the central exchange rate management mechanism of Vietnam is based on a basket of currencies (including eight key currencies such as US dollar, euro, Japanese yen, Chinese yuan, Singaporean Dollar, etc.) while the Vietnam and China trade turnover accounted for about 23 percent of the total import-export turnover in 2018, Vietnam will be under considerable pressure if the Chinese yuan depreciates.
