For the second time since 2018, the USD/VND exchange rate recorded a notable appreciation period, after the “hawkish message” (the way some international organisations commented) of the US Federal Reserve (Fed). After the meeting on June 12th and 13th, with the decision to raise basic interest rate by 0.25 percent for the second time since the beginning of the year, the Fed has issued a “hawkish message” on the possibility of accelerating the rate hike, which may be four times in 2018. In the domestic, since mid-April 2018, throughout May and so far, foreign investors have continuously net sold on the Vietnam’s stock market. With these developments, the USD/VND exchange rate is certainly mentioned. On June 20th, some newspapers headlines mentioned that a big wave of USD/VND exchange rate is booming with strong words such as “record”, “hot growth”, and “jump”, etc. In fact, the exchange rate developments have not yet hot. The difference is just that the market has too familiar with its long-lasting stability.
Generally from the beginning of the year, the changes of USD/VND exchange rate have not reached 1 percent, and the changes in the beginning of this week were very narrow within permissible range. About a month ago, the USD/VND exchange rate also recorded fluctuations and USD selling rate of commercial banks reached 22,910 VND per USD. At that time, the leader in charge and directly carry out exchange rate operating measures of the State Bank of Vietnam (SBV) said that there was nothing unusual when being asked by VnEconomy’s reporter. The foreign currency supply and demand on the markets at that time remained smooth in which all foreign currency needs were favourably met and the foreign currency status of the whole system was even positive, etc. A few days later, the USD/VND exchange rate quickly cooled down. Now, the USD selling rate of commercial banks has once again reached and surpassed 22,900 VND per USD. The situation seems to be hotter than the last fluctuation period, with the addition of the Fed’s “hawkish message” and the interest rate hike decision. However, the USD/VND exchange rate has not shown any sign of tension. It has been constantly unchanged, in which the difference between buying and selling rates reflects the demand and closely links to the amplitude, and the indicators are far away from the signal of a pressure.
Banks, as usual, apply USD buying rate lower than the selling rate about 70-100 VND per USD, and selling rate is usually not higher than the trading rate on the interbank market by more than 30 VND. All of these levels are very low compared to the ceiling limit. And the SBV has still been generous to the market. The exchange rate rise in the recent time was partly in line with the reference rate movements. The operator has actively raised reference exchange rate in recent sessions from 22,558 VND per USD on June 8th to 22,617 VND per USD on June 20th. This active increase also reflects the developments of the USD on the world market, as well as after the interest rate raise of the Fed. At the same time, the SBV continues to send a message that the agency is ready to sell foreign currency if necessary at a lower price than the ceiling (which has been 20VND lower over the time until now).
Coincidentally, the USD/VND exchange rate current uptrend is seen in late June. In years ago, late June was often the stressful time of the exchange rate. Starting from the operating direction, the oriented volatility of 2-3 percent per year was spit and late June was often the time of correction. That repeated and created expectation, and psychology to hoard USD waiting for acceleration. These factors fuelled the exchange rate movements. However, it is different now. The USD/VND exchange rate operation no longer sees leapfrogs as before. The exchange rate has been stable for nearly three years with small fluctuations and less waves. This helps consolidate confidence, market psychology on exchange rate stabilisation, limit speculation and hoarding, and orient expectation, etc.
The Fed’s interest rate hike was anticipated, foreign investors also net sold on the bourses in the last few months, but recent data of the National Financial Supervisory Commission (NFSC) showed that by the end of May, the foreign currency mobilisation of the entire system still declined by 3.1 percent compared to late 2017 instead of rising as a sign of hoarding.
Or in the overall regulator channel, in the last week, the SBV had to urgently issue bills to partly withdraw VND, which mainly came from the source of converted foreign currency (partly from the foreign currency purchasing transactions matured previously). The agency at the same time expanded the offer volume across three terms.
In addition to confidence, psychology and expectation of the market which are mentioned in the above, the current operating mechanism is also different. Along with the central exchange rate mechanism, measures to stabilise foreign currency demandwhich included virtual or resonant elements have been shown effectiveness. In the past, whenever the exchange rate appreciated, people or enterprises often massively purchased foreign currency to prepare for future payment needs and future repayment. At present, these demands no longer put pressure on the exchange rate as before. Under Circular 15, with the requirements of relaxing demand which have been implemented, not everyone, not every enterprises come to banks to buy foreign currency when they see changes.
Circular 15 stipulated that the real and legal foreign currency demands which are not due for payment or repayment in three days or more must buy forward contracts. It means that not all demands for future need preparation will result in foreign currency purchase at the same time and put pressure on the exchange rate as before. Certainly, the operating measures must be linked to the macro balances and the movement of supply and demand. In the first half of 2018, the exchange rate operating policy had advantages from the trade surplus, the record high foreign exchange reserves of about 63 billion USD, stronger foreign direct inflows compared to outflows on the stock market, and the favourable difference between USD and VND.
