SSI Research: The VND/USD exchange rate to be stable in the long term

08-Jul-2021 Intellasia | Dien dan Doanh nghiep | 5:02 AM Print This Post

The capital market report for the week of June 28th July 2nd of the analysis team of Saigon Securities Incorporation (SSI) stated that in the first six months of 2021, the dong has appreciated by 0.4 percent against the US dollar, while many other currencies in the region have all depreciated.

Specifically, the dong/US dollar exchange rate listed in commercial banks has increased by 20 dong per dollar on the buying side and declined by 10 dong per US dollar on selling side, reaching 22,900 23,100 dong per US dollar.

Accordingly, the difference between selling and buying rates has dropped to 200 dong per US dollar, the lowest level since March 2020. Meanwhile, the free exchange rate has risen by 20 dong per US dollar for buying and 40 dong per US dollar for selling, reaching 23,300 23,350 dong per US dollar.

Thus, in the first half of 2021, the dong has increased by 0.4 percent against the US dollar, while most of the regional currencies depreciated, such as Thai baht with a decline of 6.9%, Indonesian rupiah with a decline of 1.7%, Singaporean dollar with a decline of 1.8%, Philippine peso with a decline of 1.6%, etc.

SSI Research believed that since the current flows of remittances and disbursement of Foreign Direct Investment (FDI) are still positive enough to offset the trade deficit of goods. Since the foreign currency credit increase is also relatively high, the demand for foreign currencies remains fairly balanced. The research team of SSI also explained that the trade deficit in the first half of 2021 may due to seasonal factor and partly due to the recent increase in prices of goods, and will improve in the second half of 2021. Accordingly, it is forecasted that the dong/US dollar exchange rate may fluctuate according to the US dollar movements in the international market in the short term, but will remain stable in the long term.

Meanwhile, according to Mirae Asset Securities Company, in the second half of 2021, the dong/US dollar exchange rate is expected to be stable thanks to five specific factors, including (1) the expectation of the trade balance returning to surplus state when export accelerates again; (2) the continuous positive movements of FDI flows thanks to the wave of global production shift; (3) the flexible foreign currency supply and demand regulation of the State Bank of Vietnam (SBV); (4) the forecast of the US dollar to not sharp appreciate due to the large-scale economic stimulus packages and the economic support policies of the US Federal Reserve (Fed); and (5) the removal of Vietnam from the list of currency manipulators by the US Department of Finance in mid-April 2021, which reduces the pressure on the dong/US dollar exchange rate.

The analysis department of Mirae Asset still maintains the expectation that the dong will appreciate within the range of +/-0.5 percent against the US dollar in 2021. This is a common range that the SBV targets to control the dong/US dollar exchange rate in recent years. in 2021 alone, although the SBV aims to “regulate the exchange rate flexibly, in line with domestic and foreign market situation, macro balances, monetary policy objectives; and increase the national foreign exchange reserves in favourable market conditions”, experts predicted that the SBV’s monetary policy regulation will more or less be under pressure. Accordingly, although Vietnam has been removed from the list of monetary manipulating countries, the SBV should still be cautious, limit the purchase of foreign currencies, let the dong appreciate slightly against the US dollar, strive to regulate the foreign exchange rate within a common narrow range or can increase slightly to +/-0.5 percent 1 percent to stimulate the investment flows into Vietnam, reduce the burden of foreign debt repayment, and lower the trade imbalance between the US and Vietnam.

On July 6th, after reaching a peak within three months, in the world market, the US dollar Index continued its downtrend and further declined by 0.28 percent to 92.153 points, recorded at 10:10 a.m. in the local time of the dong. Except for the euro/US dollar exchange rate, the Japanese yen/US dollar exchange rate has also decreased.

Previously, Reuters mentioned that the fall from the three-month high of the greenback index was a reversal that reflected the impact of the US job data with higher number of workers in June than expected but the unemployment rate was also higher than expected. Not only sensitive to economic data, the Fed’s monetary policy orientation is also forecasted to continue to influence the US dollar Index, which can affect the exchange rate fluctuations of other currencies against the US dollar.

 

Category: Finance, Vietnam

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