Despite the continuous fluctuations of global financial markets and currencies due to the impact of the Covid-19 pandemic and tensions in US-China relations, the domestic exchange rate in the first months of the year maintained the stability. That was a favourable premise for businesses to be assured to resume import-export activities after months of being affected by Covid-19.
Long-term exchange rate stability platform
In the session on June 14, the central exchange rate was adjusted by the State Bank of Vietnam (SBV) to slightly decrease by 4 dong to 23,216 VND/USD. While exchange rates at banks still maintained a stable trend. The buying price was around 23,090 VND/USD, while the selling price was about 23,270 VND/USD. Thus, since the beginning of the year, the central rate had only increased by 61 dong, equivalent to an increase of 0.26%. Meanwhile, the current buying selling prices at commercial banks had returned to be equal to the end of 2019.
Based on the fluctuation of the exchange rate from the end of March, KB Securities Company (KBSV) stated that dong was the most stable compared to other currencies in the region. During 2020, KBSV said that the devaluation of the dong against the US dollar would only be about one percent, much lower than the 2.5 percent that many experts had forecast earlier this year.
For further analysis, experts at KBSV said that the current VND/USD exchange rate had a lot of foundation to expect stability in the long term. Specifically, as of the end of June 2020, the exchange rate and trade balance were showing positive movements. The trade surplus of the first six months was announced by the General Statistical Office at $4 billion, while in the same period in 2019, Vietnam still had to trade deficit.
Meanwhile, the remittance channel flowed to Hochiminh City in the first five months, estimated at $2.3 billion (only declined by 1.9 percent compared to the same period last year). This proved that although the Covid-19 epidemic affected very badly to countries around the world, the early control of outbreaks in Vietnam had encouraged overseas Vietnamese to invest in domestic investment channels.
Nguyen Duc Hung Linh, director of Research and Development at SSI Securities Corporation, said that in the coming months, it was likely that the exchange rate would move sideways. In a bad scenario, if the disease situation were still difficult to control, a global appreciation of the US dollar might occur. Besides, the escalating US-China tensions and slowing Chinese economic growth might also risk the devaluation of the CNY, thereby putting absolute pressure on the dong. However, with the support of the current supply of foreign currencies, the depreciation of the dong against the US dollar this year would not exceed the three-percent peak of 3/2020, Linh said.
According to experts, with the current flexible exchange rate management mechanism plus abundant foreign currency reserves, SBV could ultimately maintain a stable exchange rate in the last months of the year.
Enterprises were less concerned about exchange rate risks
According to many financial experts, the stable exchange rate during the first half of the year had a very positive impact on import-export enterprises. In recent weeks, the US dollar had depreciated slightly against the dong. Thanks to that depreciation, industries with specific foreign currency loans such as electricity, shipping, cement, as well as the import of many raw materials and consumption of finished products in the domestic market such as pharmaceuticals, plastics, tires, were benefiting.
In the export sector, the stable exchange rate had stimulated quite well for crucial export industries. Statistics in Hochiminh City showed that, in the first six months of the year, four main groups of export goods, including computers, electronic products, textile, footwear, machinery, tools and spare parts, all achieved an export turnover of about $1 billion to $8.5 billion. The largest import markets of these products, such as China, the United States and Japan, all experienced slight growth. This showed that the competitive price force of Vietnamese goods still sustained during the months when the Covid-19 outbreak broke out sharply in international markets, in which the stable exchange rate was also a definite basis for businesses to balance profits from export contracts.
Statistics of the general Department of Customs showed that, by mid-June, the import-export turnover of foreign companies reached $132.08 billion, and the trade surplus of this group of enterprises reached over $12 billion. This meant, the super productivity momentum was still powerful and was likely to grow strongly in the last months of the year.
With the continuous trade surplus, SSI Securities Corporation said that from then until the end of the year, the trade balance would continue to be the basis for SBV to stabilise the exchange rate and consolidate the thickness of foreign exchange reserves. However, the fact that domestic enterprises imported fewer input materials for production and business activities might cause an imbalance in the supply of processed raw materials for export. Therefore, at present, the USD/VND exchange rate tended to move sideways and decrease slightly, which was also a good time for businesses to take advantage of the opportunity to import new sources of goods for export processing. Especially in the context that some countries had relatively well-controlled the Covid-19 epidemic and reopened the import-export activities, and the EU-Vietnam Free Trade Agreement (EVFTA) was about to take effect in early August 2020. In which the EU would eliminate import duties on about 85.6 percent of tariff lines, equivalent to 70.3 percent of Vietnam’s exports to the EU.
