The exchange rate reversed to rise again at the end of last week although the US dollar on the world market continued to be in a slight downward trend, showing that the pressure on exchange rate in the last months of the year is still very large.
The central exchange rate increased again in the last few sessions last week. Accordingly, opening the trading session on June 27th, the central exchange rate was raised fairly strongly by 10 dong to 23,065 dong per US dollar. This was the second consecutive increasing session with a total increase of 15 dong. With an amplitude of +/-3 percent, the ceiling rate was 23,757 dong per US dollar and the floor rate was 22,373 dong per US dollar.
The buying/selling rate of US dollars also rebounded significantly after falling slightly on the June 26th session. Accordingly, the exchange rates at banks rose to par with the rates recorded in the morning of June 26th. The buying rate was from 23,245 23,265 dong per US dollar, and selling rate also dropped accordingly to 23,370 23,385 dong per US dollar.
In general, the exchange rate moves were fairly different in the last two weeks. After rising to 23,074 dong per US dollar the highest level since the trading session on June 18th the central exchange rate was gradually adjusted by the State Bank of Vietnam (SBV) to 23,050 dong per US dollar on the June 25th session and then reversed at the end of the week.
From early June until now, the central exchange rate has only increased by two dong per US dollar. However, compared to the beginning of the year, the central exchange rate has been up by 240 dong per US dollar, equivalent to an increase of 1.05 percent. Meanwhile, the buying price of the greenback at banks has only gone up by about 100 dong per US dollar, equivalent to a 0.4 percent increase; and the selling price of the greenback at banks has increased by about 130 dong per US dollar, equivalent to 0.5 percent increase.
Talking about the exchange rate developments in the recent two weeks, a banking expert said that the fluctuations were consistent with the US dollar movements in the world market. Accordingly, the US dollar index in the world market rose to the highest level since the beginning of June on June 18th, reaching 97.64 points. However, since then, the greenback has declined fairly quickly after the policy meeting of the US Federal Reserve ended with a signal of a possible interest rate cut this year.
Nevertheless, the greenback tended to recover in the last two sessions because investors were concerned about the risks from the G20 Summit. In the session on June 27th, the US dollar index inched up to 96.28 points.
In addition, the supply of foreign currencies in the country was no longer favourable as in the early months of the year, when the trade balance has shifted to deficit, particularly after the SBV purchased a large amount of foreign currency since the beginning of the year.
According to Dr Can Van Luc Chief Economist at Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), the pressure on the exchange rate is still very large. Despite slight adjustments in recent time, the US dollar index is still very high and may increase again any time as the US dollar is being view by investors as a safe asset in the context of the slowing down global economy and rising geopolitical and economic instabilities.
In the medium and long term, according to Dr Luc, the US dollar/dong exchange rate depends on macro factors such as Gross Domestic Product (GDP) growth, the overall balance of payments and trade balance, attraction of Foreign Direct Investment (FDI), gold price, etc. in addition to the US dollar fluctuations on the world market. Particularly, another noteworthy factor is the development of the Chinese yuan.
The Chinese yuan has plummeted after the US China trade tension heated up again with the US government raising import duties to 25 percent for 200 billion US dollars of Chinese goods. Although the US dollar adjustment in the recent time has partly eased the worry about the Chinese yuan may break the threshold of seven Chinese yuan per US dollar. However, many analysts said that if the US government continues to impose taxes on all of the remaining 300 billion US dollar of Chinese goods, things are unpredictable.
“As the trade turnover between Vietnam and China often accounts for about 23 percent of the total import-export turnover in 2018, in the case when the Chinese yuan depreciates, the dong will also suffer a considerable pressure of depreciation,” said Dr Luc.
The strengthened foreign exchange reserves have improved the ability to intervene of the management authority, while the abundant foreign currency supply will support the basic exchange rate stability. However, in the context when the pressure on the exchange rate is still very large and contains many uncertainties, Dr Luc believed that the exchange rate may rise by two to three percent in 2019.
Meanwhile, Dr Nguyen Duc Do deputy director of the Institute of Economics and Finance under Academy of Finance said that the impact of the Chinese yuan on the domestic exchange rate is being exaggerated. He cited that in 2018, the Chinese yuan dropped by about 10 percent against the US dollar, but on the interbank market, the US dollar/dong exchange rate only appreciated by more than two percent. However, according to Dr Do, a two percent exchange rate increase is also expected this year. This is favourable for the management of macro policies, economic stabilities and particularly inflation control.
In that context, experts advised businesses to actively use exchange rate risk prevention tools. “All banks currently provide derivative instruments to prevent exchange rate risks, including the instruments of buying and selling foreign currency forwards and swaps,” said a leader of HSBC Vietnam.
