The weekly news on the currency and bond market recently announced by Bao Viet Securities Company (BVSC) stated that on March 22, DXY index measuring the strength of the US dollar stood at 96.55 points, almost unchanged from the previous week. However, the exchange rate of US dollar against each foreign currency in the basket of DXY index has opposite movements.
In particular, the US dollar increased against the euro, the British pound, the Canadian dollar, and the Swedish krona by 0.21 percent, 0.61 percent, 0.69 percent, and 0.54 percent respectively while losing by 1.42 percent compared to the Japanese yen. The decision of the US’s Federal Reserve (Fed) to keep the interest rate at 2.25 to 2.5 percent and lower the forecast of the target interest rate for 2019 from 2.9 percent to 2.4 percent made the US dollar index dropped to 95.76 points before recovering to 96.55 points in the last session of the week when the demand for safe assets increased.
With the reduction of target interest rates, the Fed implies there will be no more interest rate increases this year. In addition, the quantitative tightening programme (QT) will be gradually closing from May and end in September 2019. The US dollar rose against the euro in the week mainly due to the published figures of the European PMI. These figures were lower than investors’ expectations, raising concerns about slow economic growth of the euro zone.
The Japanese yen rebounded sharply as concerns about the US recession began. This movement happened when the US G-bond yield curve had reversed for the first time since the crisis in 2007, and the three-month yield was higher than the 10-year yield in the US. This is one of the early warning signs of the possibility of the US economy falling into a decline phase. In that context, the Japanese yen became a safe haven currency. Therefore, in the week, the Japanese yen increased by 1.42 percent against the US dollar.
Locally, compared to the previous week, the central exchange rate continued to increase slightly by five dong last week, from 22,952 to 22,957 VND/USD. Exchange rate at commercial banks remained at 23,202 VND/USD, the same as the previous week. While the central exchange rate fluctuated slightly, the exchange rate at commercial banks was stable. BVSC’s analysis group said that it is likely that the central exchange rate will continue to be increased slightly by the State Bank of Vietnam (SBV) to create a ‘buffer zone’ while the commercial bank’s exchange rate in the following weeks will remain flat and stable, moving in a narrow range due to foreign currency supply from foreign direct investment (FDI) and foreign institutional investment (FII) remained at a good level.
This view of BVSC is similar to that of analysts of SSI Securities Company. According to SSI’s individual customer analysis and consultancy group, the interest rate gap between the dong and the US dollar is narrowing significantly, currently at 0.85 to one percent per year with the overnight term, but still at a positive level. In combination with the positive prospect of FDI disbursement, FII makes the supply of the US dollar plentiful to support the stability of the VND/USD exchange rate in the near future when the international environment does not have much change.
SSI also said that the current stable exchange rate movements helped reverse speculation and hold foreign currency in the market. In addition, the buying rate of the SBV is very attractive, so the management agency continuously buys a large amount of foreign currency to increase the scale of the national foreign exchange reserve.
