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Exchange rate escalates in the middle of the epidemic

Wednesday 05, 02 2020
The exchange rate of USD/VND began an uptrend after a period of remaining at a relatively stable level before the Lunar New Year holiday.
Exchange rate escalates in the middle of the epidemic

The central exchange rate of the State Bank of Vietnam (SBV) set a new peak of VND 23,206/dollar on February 4, an increase of 36 VND/USD compared to the time before Tet, raising concerns that the VND is suffering from a lot of pressure from world events, including the corona pandemic.

Exchange rate rebounded

The exchange rate of USD/VND began an uptrend after a period of remaining at a relatively stable level before the Lunar New Year holiday. Restarting at VND 23,185/dollar on the first day of work (January 30), the central exchange rate has increased by VND 15 compared to that of January 22, followed by the chain of increase of VND 11 in the next 2 trading days, of VND 5 on February 3 and VND 4 on February 4.

Reference rates at the State Bank of Vietnam were listed at the bid of VND 23,175/USD and the asked of VND 23,852/USD.

Many commercial banks from the beginning of the week have also adjusted the USD/VND exchange rate to increase by 20-30 dong/dollar in both directions of buying and selling, with the highest bid price reaching 23,343 dong/dollar and the lowest asked price of 23,170 VND/dollar.

According to Mr. Ngo Dang Khoa, Country Head of HSBC Vietnam Monetary and Capital Market Division, the USD/VND exchange rate, after a long period of stabilization, witnessed strong fluctuations in the days after the holidays.

“While in January the pair of exchange rates on the interbank market only traded around the buying price of the SBV - 23,175, there has been a rapid upward movement away from this price level, approaching the 23,260-23,280 level, equivalent to the increase of VND 100 and the strongest increase in recent months ever since the market reopened after the Tet holiday. For the central bank, the central exchange rate is also constantly set at a new peak, surpassing the mark of VND 23,200 and currently at the highest level of VND 23,206 (February 4), up 0.24% from the lowest level of VND 23,150.

However, the exchange rate has shown signs of cooling off as the currency pair begins to gradually decline back to 23,230-23,240 in the interbank market in the context of the balance of supply and demand of foreign currencies gradually regaining its stability, as well as of the stable market sentiment. The relatively strong exchange rate fluctuations in both directions after a long period of sideways movement is a relatively new development this year, ”Khoa shared with Saigon Times Online.

Exchange rate escalates in the middle of the epidemic

The epidemic and safe haven channels for investors

According to this director, there are two main reasons that can explain the upward trend of the exchange rate this time.

Firstly, the general movements in the world financial market continue to fluctuate unpredictably in a negative direction. With the effects of the corona virus pandemic respiratory outbreak, investors have a tendency to flee from risky assets and seek safe-haven assets. World stock markets in general and Asia in particular, including Vietnam, have dropped sharply. The Yuan has surpassed 7.00 after the long holiday, while the US dollar index rose by 0.44% on Monday, which has been the strongest gain since the start of the year.

Secondly, in addition to the market factor, the upward momentum of the exchange rate came from concerned psychological pressure due to unfavorable macro factors is also a reason that we need to consider. The recent inflation index, especially in January, has witnessed the strongest increase since August 2013. The core inflation index has also increased rapidly at 3.25% over the same period last year, compared to the average of 2% in 2019.

>> Impact of novel coronavirus on Vietnam’s economy

Meanwhile, the pandemic corona virus pandemic also raises concerns about a decline in revenue from tourism, commerce, and consumption. The decline in tourism revenue, which accounts for approximately 12% of GDP 2019, will lead to the possibility of a trade deficit for Vietnam. The boom in Vietnam's tourism with an annual revenue increase of approximately 30% since 2015, which is largely contributed by Chinese customers (accounting for over 30% of the total number of tourists), could be stagnated again this year. The revenue from foreign currencies may also be affected, "Khoa said.

Regarding the situation where Vietnam has to import more materials to produce anti-epidemic items such as masks and hand sanitizers, Mr. Khoa said that exchange rate movements would depend on many market factors, including macroeconomic indicators as well as domestic supply and demand of foreign currencies, foreign investment inflows, currency basket fluctuations in the world market.

“So having to import more raw materials to produce may put some pressure on Vietnam's imports, but it does not reflect the overall trade balance of Vietnam. Whether the USD/VND exchange rate continues to increase is still based on the above factors.”

​>> What Is The Expectation About The Economy, Exchange Rate And Inflation In 2020?

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