HSBC: The exchange rate to be under pressure of devaluation in H2

20-Jul-2021 Intellasia | Bao Dau tu | 5:02 AM Print This Post

Ngo Dang Khoa, Head of Foreign Exchange and Capital Market Division of HSBC Vietnam, said that in the first six months of 2021, the US dollar still recorded many strong fluctuations. The US dollar index, after reaching the peak of the year in the end of the first quarter (Q1), is finding its strength when bouncing back up in the second half of June, right after the regular meeting of the US Federal Reserve (Fed).

With the greenback rising strongly again, the currencies in Asia are under the pressure to weaken accordingly and the dong is no exception.

HSBC’s representative believed that although in most of the first six months of 2021, the dong/US dollar exchange rate mostly traded in the range of 23,010 — 23,100 dong per US dollar with a tendency of dong appreciation. However, the situation tends to reverse after the last meeting of the Fed.

Specifically, the State Bank of Vietnam (SBV) continued to buy a large amount of foreign currencies through forward operation, before deciding to lower the buying rate of dong to 22,975 dong per US dollar in the first week of June 2021, showing that there is room for the dong to increase in the short term.

Nevertheless, in the medium and long term, especially from now to the end of the year, there is possibility that the dong will be under the pressure of devaluation again with a forecast level of 23,100 dong per US dollar by the end of this year.

According to HSBC, one of the reasons can be mentioned is the trade balance turning into a deficit, the concerns about higher commodity prices and the possibility of the US dollar interest rates entering a rising cycle again.

In general, it is quite certain that the US dollar/dong exchange rate is unlikely to maintain the stable trend as in the first half of 2020. Instead, there will be more vitality in the second half of the year, caused by the fluctuations in the international market, particularly the Fed’s actions in the coming months as well as the internal risks that the Covid-19 brings.

Meanwhile, UOB’s update also forecast that the US dollar/dong exchange rate could stand at 23,000 dong per US dollar in Q3 and Q4 of 2021, then 23,100 dong per US dollar in Q1/2022 and 23,200 dong per US dollar in Q2/2022.

According to UOB’s latest report, data in April and May 2021 showed that Vietnam’s economy continued to recover above the GDP growth of 4.5 percent in Q1/2021 compared to the same period of last year.

However, a new wave of Covid-19 outbreak in many localities has resulted in restrictions on movement and disruption of a wide range of business and production activities.

The Foreign Direct Investment (FDI) inflows will remain positive in 2021, reflecting investors’ confidence in Vietnam’s importance in the global supply chain. The total registered FDI in the first half of 2021 was over 15 billion US dollars, and the FDI disbursement was 9.24 billion US dollars, mainly in the infrastructure sector, followed by manufacturing sector. UOB expected the GDP growth in 2021 to be 6.7 percent (2020: 2.91%).

Vietcombank Securities Company (VCBS) stated that the SBV has many resources to stabilise the exchange rate, with a fluctuation level of about 0.5 percent during the year.

Meanwhile, according to the weekly capital market report from June 28th to July 2nd, Saigon Securities Incorporation Research (SSI Research) mentioned that the US dollar/dong exchange rate listed in commercial banks increased by 20 dong per US dollar on buying rate and declined by 10 dong per US dollar on selling rate, reaching 22,900 — 23,100 dong per US dollar. Accordingly, the difference between the selling and buying rates has decreased to 200 dong per US dollar, the lowest level since March 2020. Meanwhile, the exchange rate in the free market increased by 20 dong per US dollar on buying rate and 40 dong per US dollar, reaching 23,300 — 23,350 dong per US dollar.

“The US dollar/dong exchange rate could fluctuate according to the movements of the US dollar in the international market in the short term, but it will remain stable in the long term,” said SSI Research.

 

Category: Finance, Vietnam

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