The forex market remains calm in peak season

21-Jan-2021 Intellasia | VnEconomy | 6:02 AM Print This Post

Although the Lunar New Year is coming in just over half a month, the US dollar/dong exchange rate developments remain fairly calm.

Usually, near the Lunar New Year, the remittances transferred to Vietnam increase. At the same time, the demand for payment in dong on this occasion also begins to rise, strongly stimulating the conversion from foreign currencies to dong, causing the dong to appreciate.

Indeed, in recent years, before and after the Lunar New Year, the US dollar/dong exchange rate often dropped sharply and created the opportunity for the State Bank of Vietnam (SBV) to spread “the net” to buy in foreign currencies to supplement the foreign exchange (forex) reserves. This net can be simply understood as the US dollar spot buying rate listed at the SBV Operations Centre. It is also the limit to prevent the US dollar/dong exchange rate from falling too deeply on the interbank market.

In 2021, after being labelled by the US as a currency manipulator, the SBV’s spot buying rate “net” has been replaced by the net of revocable six-month exchange rate. It can be understood that the operator wants to use the future foreign currency supply to stabilise the present situation, and expects the market to self nurture.

Therefore, banks will have to hold foreign currencies longer and balance the dong in a longer term. It means that in the short term, the demand for foreign currencies of banks will decrease relatively and banks’ buying and selling exchange rate will go down in the direction of the dong slightly appreciating against the US dollar.

However, although the peak season has begun, and despite the increase in supply and decrease in demand, the US dollar/dong exchange rate remains calm, because it has had many great reductions.

On the other hand, the US dollar has started to rise again in the world market thanks to the overwhelming victory of the Democratic Party in the US Congress and the proposal of a 1,900 trillion-dong fiscal stimulus package by the new President Joe Biden. Currently, the DXY index has sharply risen to the highest level in the past month, reaching 90.7 points.

In the market, during the last week, the interbank exchange rates did not fall but inched up by two dong, closing at 23,069 dong per US dollar. The uptrend even continued to be seen in the exchange rate tables of some commercial banks in the trading session at the beginning of this week (January 18th).

In the capital market last week, the Open Market Operations (OMO) continued to have no transactions and the interbank interest rates levelled off at 0.2 percent per annum for overnight term and 0.26 percent per annum for one-week term. The savings and lending interest rates were also flat in the first half of January.

In a recent statement, the SBV’s representative said that the agency would check and evaluate the reduction of lending interest rates of commercial banks and suggested that banks shall consider lowering lending rates as an important priority to deal with in early 2021.

“With the drastic move from the operator, the savings interest rates will remain stable in the current zone and lending interest rates are expected to slightly decrease for priority areas in the first quarter of 2021,” Saigon Securities Incorporation (SSI) forecasted.

In the government bond market, the State Treasury successfully carried out the first bid in 2021. All six trillion dong of bonds offered on four terms of 10, 15, 20 and 30 years were fully issued. The winning bond yield remained unchanged on 20-year term and fell by two to four basis points on the remaining terms.

The low interbank and savings interest rates and the SBV’s loosening stance are still the main factors causing the pressure of decline for government bond yields in the short term. However, since the maturity increase significantly this year, the government bond yields are likely to move sideways or inch up slightly in 2021.

The government bond yields on the secondary market also plummeted. The market liquidity sharply increased, the total trading value in the week reached 74,400 trillion dong, up by 10.6 percent over the previous week. Foreign investors net purchased 1.3 billion dong.


Category: Finance, Vietnam

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