Foreign exchange rates have cooled down but still high. (Photo: VietnamPlus) Hanoi (VNA) – After a relative period of stability, the USD/VND exchange rate has increased sharply. Experts said that the surge in exchange rates will last for just a short time, but enterprises still need to take measures in anticipation of the risks.
From August 28 to 31, the USD/VND exchange rate rose sharply. At Vietcombank, the sharpest increase was recorded on August 30, when the rate hit 24,350 VND per USD while the daily reference exchange rate, set by the State Bank of Vietnam (SBV), was 23,977 VND per USD.
However, the rate gradually cooled down after the Natonal Day holiday. Vietcombank listed its selling rate on September 5 at 24,240 VND per USD, down slightly from the previous week, while the reference rate for the day was reduced by 281 VND to 23,959 VND per USD.
Despite certain declines, exchange rates are still high, over 24,000 VND per USD, up 1.4% from the end of July and 1.6% from the year’s beginning.
In August, the SBV raised the daily reference exchange rate for the greenback by a total of 0.82% from July. This was the strongest hike since the start of 2023 and also partly reflected the pressure on exchange rates in the recent past.
Ngo Dang Khoa, Director for the foreign exchange, capital market and securities services division of HSBC Vietnam, said the pressure comes from the impact of the international market. Inflationary concerns in the US have yet to ease while interest rates in the world’s biggest economy bounced back last week. The US Dollar Index, which measures changes in the greenback’s value in comparision with a basket of six key currencies (EUR, JPY, GDP, CAD, SEK, CHF), inched up 0.65% to 104.26.
Meanwhile, the contrast between the monetary policies of Vietnam and the US is also among the causes of the pressure on domestic exchange rates. The slowdown in growth curbed inflation, and the forex market’s stability during the first months of 2023 showed the priority Vietnam has given to growth promotion. This was completely different from the US, where economic statistics remain positive and the core inflation hasn’t been brought down to the target level, forcing the Federal Reserve (Fed) to keep tightening monetary policy.
Interest rate differentials form a factor encouraging the holding of foreign currencies, which has subsequently fuelled exchange rates in the recent past. (Photo: VietnamPlus) Experts said that exchange rates have fluctuated strongly as the SBV lowered regulatory interest rates four consecutive times since the start of 2023. Meanwhile, the Fed and many major central banks in the world are still pursuing tightened monetary policies to contain inflation. Exchange rate differentials form a factor encouraging the holding of foreign currencies, which has subsequently fuelled exchange rates in the recent past.
In addition, weaker exports have also affected sources of foreign currency revenue, keeping exchange rates high.
Khoa said recent exchange rate fluctuations are short term, and the Vietnamese dong will appreciate in the medium to long term. In the international market, the US dollar is forecast to depreciate in the last months of the year as Fed has neared the end of its tightening cycle.
Processing aquatic products at a company in Vietnam (Photo: VietnamPlus) Echoing the view, Tran Van Tanh, deputy head of the research and analysis division of the Yuanta Securities Vietnam Co. Ltd, said exchange rate fluctuations are manageable, and such a tense scenario as in 2022 is unlikely to happen because the SBV now has more favourable conditions than in the same period last year. The central bank also purchased over 6 billion USD to supplement the country’s foreign exchange reserves in the first half of 2023.
He perceived that the exchange rate issue will only become truly tense if Fed raises interest rates again at its September meeting and the US dollar continues gaining strength. However, insiders predicted that Fed is more likely to maintain current interest rates./.
