The end of the year exchange rate remains stable

27-Nov-2020 Intellasia | Dau tu Online | 6:02 AM Print This Post

The domestic exchange rate’s risk was expected to come from external factors with the global epidemic situation, and the results of the unresolved US presidential election were being faded.

The US dollar discount was consistent with international developments

The US presidential election was the dominant focus of the global financial market last week. Current President Donal Trump took the lead after election night, but the subsequent wave of pro-mail votes helped Joe Biden get ahead. However, Trump did not easily surrender when declaring his readiness to sue the Supreme Court on allegations of vote-counting fraud. These developments would affect prospects through a new fiscal stimulus package for the US, but the market was still very optimistic.

At the regular policy meeting on November 5, the US Federal Reserve (Fed) announced that the basic interest rate policy of zero percent to 0.25 percent per year would remain unchanged until 2023 and kept buying bonds at $120 billion per month. In resonance with the positive sentiment after the election results, the US dollar had dropped sharply, boosting the price of gold and the US government bonds. DXY index retreated to 92.2 (from 94 at the end of last week), all currencies gained enormously against USD last week, like euro (+ 1.95%), GBP (+1.61 %), CHF (+ 1.9%), JPY (+1.25%).

As noted by the Securities Investment Newspaper, on the foreign exchange market, the USD/VND exchange rate listed by commercial banks remained at 23,060 VND/USD to 23,270 VND/USD. Following the US dollar movement in the international market, the free market rate declined to the level from 23,160 VND/USD to 23,200 VND/USD (i.e. down by 105 VND/USD). The domestic foreign currency supply and demand remained quite favourable, and the VND/USD exchange rate was also forecasted to stay unchanged in the short term.

The US dollar interest rates for overnight and one-week terms tended to go sideways at a low level of 0.1 percent to 0.3 percent per year. The average trading value per session in October 2020 was about 23 trillion dong, about 15 percent lower than the previous month’s average trading value. Transactions still focused mainly on the overnight and one-week period (accounting for about 90 percent of the total transaction volume).

In general, factors affecting the US dollar’s interest rates tended to support the interest rate level’s stability, said a senior leader of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV). Specifically, the LIBOR US dollar’s interest rate on the international market stayed at a low level with the overnight, one-month term at around zero percent to 0.18 percent per year when the Fed continued to keep the basic interest rate in October. Besides, the US dollar’s liquidity in the country was plentiful when the difference between the US dollar’s mobilisation and lending remained at the highest level in many years.

Since the beginning of the year, the US dollar’s deposit growth was estimated at eight percent, while the US dollar’s lending rate tended to decrease slightly by about one percent, the leader of BIDV revealed.

Looking at the future trend, a study by BIDV Capital and Monetary Business Committee stated that, in November, interbank US dollar’s liquidity would remain stable with an average interest rate around 0.1 percent to 0.3 percent per year for overnight, one-week terms and 0.7 percent to 0.9 percent per year for the three-month term when the impact factors, in general, had not changed much compared to the previous month.

Besides, the favourable domestic foreign currency supply and demand would still be a stable fulcrum for the USD/VND exchange rate’s stable trend in the range of 23,175 dong to 23,200 dong per US dollar. Foreign currency supply from import-export activities and the foreign direct investment (FDI) disbursement was expected to remain optimistic, reaching about $1.5 billion per component. The balance of supply and demand of foreign currency was expected to have a slight surplus of about $0.5 billion.

The domestic exchange rate’s most significant risk might be external factors with the possibility that the epidemic continued to spread globally, and the US presidential election could not end in order. However, many positive macro factors were making this risk fade away, the above study emphasized.

There appeared unexpected factors

Sharing with the Securities Investment Newspaper, Le Quang Trung, deputy general director of Vietnam International Commercial Joint Stock Bank (VIB), stated that the market had received good news from a US pharmaceutical company, Pfiser, and its partner BioNTech. These two companies had just announced the research results showing that Pfiser vaccines had a preventive effect of over 90 percent after a second injection for a week, meaning protection from the new Coronavirus inoculated 28 days after the first vaccination.

According to Trung, this news might determine the momentum of global economic growth with the hope of recovery. Vietnam was a country that had well-controlled the epidemic recently and had a stable macroeconomy. Regarding the excellent news of vaccines, the exchange rate would be stable in the last months of 2020 and increase in the future.

To clarify this story, Trung shared, Vietnam’s trade surplus over the years had increased positively, especially with more than $17 billion in the first 10 months of 2020, and foreign exchange reserves could reach $100 billion by the end of this year.

With the exchange rate maintaining stability when the supply-demand of foreign currency was abundant in the country, commercial banks also recorded selling foreign currencies to the State Bank of Vietnam (SBV) with an estimated volume of about $0.8 billion to $1 billion in the past few sessions. All of the above factors supported the dong, and accordingly, this year’s inflation could be controlled below three percent, lower than the initial target of under four percent. This meant macroeconomic stability was available, Trung said.

Analysing more about the fact that the dong could increase in the future, Trung said, due to the trend of shifting production, supply chain, and investment out of China and Vietnam was one of the destinations of this capital flow. Accordingly, it would help Vietnam’s macro-economy continue to be stable, and the dong would continue to appreciate. Besides, whether Biden or Trump won the US presidential election, both would continue to loosen monetary policy, pump money out of the market to support the economy.

Where would the money inflow go? A look back at 2009 (the year after the 2008 financial crisis) showed that this cash flow seemed to prefer assets in emerging markets where all the injected money could be consumed. To put it merely, pumping money out was not to pump money for America and Western European countries because the assets in these markets were costly. In fact, emerging markets, including Vietnam, would benefit from this money. Vietnam also received cash flows of foreign indirect investment (FII). Hence, it was highly likely that the exchange rate would continue to stabilise in 2020 before the dong appreciated in 2021, Trung analysed.

According to this expert, many of Biden’s policies would be good for the entire Southeast Asia region if analysed further. For example, Biden’s global commercialisation policy would differ from Trump’s previous policy of populism with the slogan ‘America First.’ Therefore, Vietnam would be one of the countries benefiting from Biden’s policy.

In another perspective, Nguyen Tri Hieu, an economist, said that when Biden came to power, the US and China’s political and commercial relations would be more harmonious, possibly even ending the trade war. If this happened, the activities of ‘temporary import from China and re-export to the US’ might cease and make the figure of Vietnam’s export surplus to the US or Vietnam’s trade surplus more realistic, eliminating them from temporary import for re-export, thereby positively impacting trade activities in particular and the economy in general.


Category: Finance, Vietnam

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