SSI Securities centre (SSI Research) had just released a report on the monetary market in February, in which, experts said that the tools to support the exchange rate stabilisation of Vietnam had not reached the threshold.
In February, the Covid-19 epidemic broke out seriously. Psychological fear of risk caused gold to rise to nearly $1,700 per oz, which was a seven-year peak, while the DXY index also reached close to 100, contrary to the rule that the US dollar increased, the gold price decreased as usual. The positive information on economic growth made the US market become a bright spot and the US dollar selected by investors as a shelter. However, in the last week of February, the disease showed signs of spreading in the US, causing the US dollar to cool down quickly and the yields of the US government bonds in particular and the global market, in general, dropped sharply to the historic low.
The three-month US government bond yields were much higher than those of 10-year and fewer terms. The yield curve had moved down a long line (30 percentage points to 40 percentage points) and continued to reverse.
The Japanese Yuan regained its leading position as the main currency with an increase of 0.54 percent compared to the previous month while most other currencies depreciated against the US dollar. The strongest decrease was the Russia Ruble (RUB) (down 4.52 percent over the previous month, up 7.92 percent compared to the beginning of the year), the Thai Baht (THB) of Thailand (down 0.98 percent from the previous month, up 5.97 percent over the beginning of the year) and the Korean Won (KRW) (up 0.37 percent over the previous month, up 3.82 percent from the beginning of the year).
These were economies that had suffered heavy losses due to falling prices of oil, services, and tourism. In this context, the Chinese Yuan (CNY) of China only decreased by 0.42 percent over the previous month and increased by 1.17 percent compared to the beginning of the year thanks to efforts to stimulate the government economy and signs of epidemic control.
Monetary easing policy continued to be used as a stimulus to the economy. In February, the People’s Bank of China (PBoC) reduced a series of operating rates, raised the reference rate, injected money strongly on the open market operation (OMO).
Along with PBoC, other countries, such as Russia, Thailand, Philippines, Indonesia, and recently the US, Australia, Malaysia, Canada, had also cut interest rates. However, after the strong easing wave in 2019, there was not much room for monetary policy, so governments might have to turn to fiscal policies such as increasing government spending and reducing taxes.
The government of Singapore had announced a $4.6 billion budget package. The Japanese government spent $93.8 million, Malaysia exempted the personal income tax (PIT) for tourism workers. South Korea was submitting to the National Assembly an additional budget, and so on.
A big question was how far the disease would spread when many countries were still not fully controlling it. The global economy was facing great risks and so the financial and monetary market would continue to be unpredictable.
The USD/VND exchange rate was still under control
Under pressure from international developments, the USD/VND exchange rate rebounded sharply to the new price zone from the beginning of February. At the end of the month, the USD/VND exchange rate on the bank increased by 40 VND/USD, to 23,140 dong/23,310 dong; the free rate increased by 50 VND/USD on the buying side and 70 VND/USD on the selling side, to 23,250 dong/23,270 dong; the central rate also increased sharply, sometimes peaking at 23,245 VND/USD then falling to 23,224 VND/USD, up 28 VND/USD in February.
Since the beginning of the year, the USD/VND exchange rate had increased by 0.27 percent but was just asymptotic to the exchange rate area at the end of 2018. The exchange rate was only recovering after a decrease in 2019.
The disease outbreaks might cause exports to decline but imports of goods for production and consumption were also slowing. According to data from the general Statistical Office, the trade balance in February was estimated at a surplus of $100 million. February’s foreign direct investment (FDI) disbursement was $850 million, accumulated in two months reached $2.45 billion, down five percent over the same period in 2019.
Domestic supply and demand for foreign currencies remained stable, but the cautiousness increased, reflecting the difference between the buying and selling rates of commercial banks, between the free rate and the bank rate.
According to SSI Research, the Federal Reserve (Fed)’s decision to reduce interest rates by 50 basis points would make the US dollar on the international market cool and would drag the domestic US dollar interest rates down, widening the VND/USD interest rate gap on the interbank.
SSI Research said that the pressures might increase if the disease situation continued to worsen, but in the long term, the exchange rate stabilisation tools still had room and therefore there was no need to worry about the loss of dong. Exchange rate movements in 2020 would remain under the control of the regulator and if the exchange rate was adjusted, it would only fluctuate around one percent.
