Different from previous years, VND has been quite stable from the beginning of the year until now. However, in the remaining months of the year, there are many factors contributing to the downward trend of VND, but the depreciation will not be strong, estimated to be below two percent in 2019.
On October 28, in the world market, the USD-Index increased by 0.2 percent to 97.558 points compared to the basket of six major currencies
This increase is seen as the market is expecting the policy makers of the Federal Open Market Committee (FOMC) to approve a 25 basis point interest rate cut at the October 29-30 meeting. The interest rate of the Federal Fund will be lowered from 1.75 percent to 1.5 percent per year.
Contrary to world movements, the State Bank of Vietnam (SBV) announced the central exchange rate of VND against USD at 23,152 (down 3 point compared to the end of last week of 23,155). With a margin of +/- 3 percent applied, the ceiling rate at banks today is 23,847 VND/ USD and the floor rate is 22,457 VND/ USD.
For example, at Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), the exchange rate listed at 23,11523,265 VND/ USD (buysell), unchanged compared to the end of last week.
Similarly, the exchange rates at Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) did not change, respectively 23,14023,260 VND/ USD and 23,13123,271 VND/ USD.
In fact, the third quarter has witnessed the opposite movement between the central rate and the actual exchange rate at commercial banks.
Accordingly, as of the end of September 2019, the central exchange rate increased by 1.5 percent, while the exchange rates at commercial banks were almost unchanged compared to the end of 2018.
Notably, concerns over the fact that the VND would depreciate sharply following the plunge of CNY against USD in the world market (over four percent) did not actually occur.
Meanwhile, most currencies in emerging countries in Asia have dropped sharply against the USD.
Specifically, from the beginning of 2019 to the present, the strongest depreciation was the Korean won (negative 7.8 percent), followed by Chinese yuan (negative 4.2 percent), Indian rupee (negative 2.4 percent) and SGD of Singapore (negative 2 percent).
The reason for the stability of VND, not following the devaluation of yuan, in the context of strong depreciation of currencies of other countries, is believed to be because Vietnam’s trade balance returned to a strong trade surplus in the third quarter of 2019 (reaching $4.28 billion), helping to raise the supply of foreign currencies in the market.
In addition, economists said that despite the pressure of dong devaluation to support exports when yuan depreciated, the risk that Vietnam was included in the list of currency manipulation by the US government had made SBV more cautious in pumping the dong and the foreign currencies.
At the same time, the disbursement of foreign direct investment (FDI) is also positive, reaching $5.12 billion, up nearly five percent over the same period in 2018.
Notably, the number of capital contribution and share purchase transactions continued a strong upward trend since the beginning of this year, with the total value in the third quarter of 2019 reaching $2.28 billion, up 43 percent over the same period.
The trade balance was nearly $4 billion, a highest record, with a strong boost of electronic items such as phone components and computers.
In addition, capital inflows from international bond issuance and corporate equity transactions also brought about $2 billion with deals of Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) ($300 million), Vincommerce ($500 million) and BIDV ($900 million).
Generally, in the third quarter of this year, the estimated difference between the supply and demand of foreign currencies reached $7.5 billion and tilted toward the supply, significantly higher than the figures of the second quarter and the first quarter ($2 billion and $6 billion respectively).
Abundant foreign currency supply helped SBV buy a large amount of foreign currencies in the third quarter, estimated at $5 billion.
For the whole year, the dong will only depreciate below two percent
Sharing with the reporter of the Securities Investment Review, senior management of BIDV stated that the forex market in the fourth quarter of 2019 could still maintain stability. The surplus of supply and demand of foreign currencies will be the fulcrum for the exchange rate, although the abundant state can be reduced compared to the third quarter.
Specifically, the trade balance is forecasted to have a surplus of about $300 million in the fourth quarter. Meanwhile, FDI disbursement is expected to reach $6-6.5 billion, up about six percent over the same period, remittances are also expected to return soon before Tet.
It is estimated that the difference between supply and demand of foreign currencies in the fourth quarter may be about $1.5-2 billion in favour of the foreign currency supply.
On the other hand, contrary to the same period last year, the current market sentiment has become more stable against the volatile information of trade war.
Therefore, unless there are mutant risk factors including USD/ CNY exchange rate surpasses 7.2 and the conflict in the East Sea increases, USD/ VND exchange rate is expected to fluctuate stably in the range of VND 23,200-23,250 per US dollar in the fourth quarter according to the base case scenario (60 percent probability).
Factors affecting the exchange rate can be mentioned are the international pressure, which is not expected to be large because the US-China negotiations in October may bring a temporary agreement to help reduce the heat of trade. However, both countries are suffering from the economic impact of the taxation measures.
Meanwhile, the Fed is expected to lower interest rates at least once more time in October or December to continue to prepare for the US economy.
The interbank interest rate difference of VND/ USD basically remains at a positive level, with the one-week term fluctuating around 0.5-1.5 percent. Market sentiment is forecasted to stay stable, alleviating anxiety in the context of international pressure can cool off.
“Unless there are sudden risk factors, the interbank USD/ VND exchange rate is expected to fluctuate stably in the range of 23,200-23,250 USD/ VND in the fourth quarter,” said a BIDV leader.
It is forecasted that in the last quarter of the year, the interbank USD interest rate will continue to decrease by 0.1-0.2 percent compared to the end of September, the average interest rate will fluctuate around 2-2.1 percent for overnight and one-week rate week and 2.5-2.6 percent for one to three-month term.
USD credit mobilisation gap continues to widen in this quarter, increasing by about $2.5 billion compared to the end of June.
If the capital mobilisation of foreign currency continued to grow steadily, the USD credit activities of commercial banks recorded a sharp decline, USD credit outstanding balance at the end of September fell by about 6.2 percent compared to the end of June.
“Decreasing foreign currency credit activity from Circular 42/2018/ TT-NHNN has limited the number of subjects allowed to borrow foreign currencies compared to the previous regulations”, Nguyen Tri Hieu, an economist said.
The currency director of a bank said that VND was likely to depreciate against the US dollar because the trade balance might reduce trade surplus in the last quarter of the year, in addition to unpredictable movements of US-China trade war, but the dong’s price pressure would not be large and the dong devaluation for the whole year 2019 would still be below two percent.
Talking to the reporter, deputy general manager in charge of capital sources of a joint stock commercial bank said that the USChina trade war was still the biggest risk factor in the short term for the exchange rate.
In times of escalating US-China trade tensions, yuan tended to decrease due to concerns about China’s economic growth being affected, while US dollar strengthens, creating double pressure on the dong in the downward direction.
