Dong to continue devaluing in H2

19-Aug-2017 Intellasia | DTCK | 6:00 AM Print This Post

On August 11, the central exchange rate announced by the State Bank of Vietnam (SBV) was 22,442 dong/US dollar, down one dong in both selling and buying prices from the previous session. The reference exchange rate at the State Bank’s Stock Exchange was 22,725 dong23,095 dong per US dollar (up two dong each).

Meanwhile, in commercial banks, Vietcombank listed buying-selling prices for US dollar at 22,695 dong22,765 dong/US dollar, up five dong in both prices compared to the previous trading session. At Vietinbank, the exchange rate was 22,690-22,760 dong/US dollar (buying-selling). ACB bought at 22,700 dong and sold at 22,770 dong per US dollar.

Talking to reporters of the local Newswire Dau Tu Chung Khoan, a senior leader of the National Financial Supervisory Commission (NFSC) said the dong/US dollar exchange rate at commercial banks and on the free market is stable compared to the previous time and dong continues the decreasing trend from the beginning of the year.

NFSC’s calculation proved the aforementioned assessment. Specifically, as of July 20, 2017, the exchange rate at commercial banks ranged around 22,730 dong/US dollar, down 0.13 percent from the beginning of the year.

At the same time, the exchange rate on the free market closely followed that of commercial banks, trading at 22,780 dong/US dollar, down 1.14 percent from the beginning of the year. Meanwhile, the central rate was adjusted up 1.24 percent from the beginning of the year.

“The consecutive reduction of Bloomberg Dollar index caused dong/US dollar exchange rate to lessen many pressures. The move to increase central rate of the State Bank was only to support export and avoid future shocks”, said the NFSC leader.

Agreeing with the aforementioned opinion, BIDV’s senior leader said the foreign exchange market has stable trend. The foreign exchange supply was abundant, and exchange rate mainly went sideway.

Specifically, the exchange rate in July 2017 increased slightly at the beginning of the month and then moved sideways around the buying price of the State Bank, ranging around quite narrow range of 22,725-22,760 dong/US dollar. Notably, in July, SBV bought exchange rate from the market with the estimated volume of about $475 million.

Besides, though the difference in dong/US dollar exchange rate has narrowed and reached negative level for short terms from overnight to one week, the foreign exchange market is said to have the strong support from the supply-demand balance and US dollar fluctuations in the international market.

Specifically, the foreign exchange supply is still abundant. Though the trade balance in July is estimated to post slight trade deficit of about $200 million, the FDI disbursement still maintains positive growth momentum of about 6-7 percent from the same period last year, reaching about $1.33 billion. In addition, foreign indirect investment also happened vibrantly in both share and bond markets.

Besides, the DXY index that measures the strength of the US dollar in the international market also continued to plunge 2.8 percent in July, in the context that the U.S’s inflation continued to be below the expectation, causing the U.S Federal Reserve (Fed) to decide to remain the interest rates in the meeting on July 25 and 26.

As per the NFSC’s leader, during the remaining time of 2017, sharply rising foreign currency demand due to seasonal factor may affect the market. generally, in January-July 2017, Vietnam’s trade surplus was $3.08 billion, equal to 2.7 percent of the total exports.

“However, due to increased foreign exchange reserve and the increased difference in interest rate between dong and foreign currency is still more favourable to dong, it is forecasted that dong will depreciate at the same level as in the first six months of the year”, forecasted the NFSC leader.

BIDV forecasts that the US dollar/dong exchange rate will maintain stable trend in August 2017, ranging around 22,725 dong22,750 dong/US dollar as the supply continues to be abundant and the pressure from the international market is low. The cash flow from FDI disbursement is more likely to grow strongly in 2017 as Vietnam continues strong reforms and the government gives commitments on development of healthy business environment.

It is forecasted that the disbursement of foreign direct investment (FDI) in August continues to maintain a high level of about $1.4 billion. This cash flow will accordingly offset the trade deficit which is expected to be at low level, ranging around $200-300 million.

Besides, the DXY index is expected to go sideways or decrease as the new government in the U.S still faces some difficulties in the adoption of policies to vigorously support the economy while there have had some downturn and recession signals of the U.S economy.

A senior leader of BIDV said “The State Bank will not continue raising the buying exchange rate in August 2017 when a large amount of foreign currency supply in the market is abundant and commercial banks have not sold to the State Bank”.

It is estimated that at the end of August 2017, exchange rate will be 22,750 dong/US dollar compared to 22,800 dong/US dollar at the end of Q3 and 22,950 dong/US dollar at the end of the year”.

 

Category: Finance, Vietnam

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