Hanoi (VNA)ꦕ – The foreign currency market and exchange rate is expected to enjoy more favourable developments thanks to abundant foreign exchange supply.

Experts attributed decreases in the reference exchange rate and exchange rates at commercial banks to abundant supply of foreign currencies, stable foreign exchange reserves and the depreciation of the US dollar.

Impact from international market

The State Bank of Vietnam set the daily reference exchange rate at 23,121 VND per USD on June 2, up 4 VND from the previous day. However, the rate was still 121 VND lower than the April 1 session. The reference exchange rate has witnessed continuous decreases since April. The USD transaction price at commercial banks has also decreased from 25-40 VND to the number lower than that recorded at the end of 2020. Evaluating this phenomenon, banking and finance expert Nguyen Tri Hieu said that this is not unusual because the US Government had pumped 1.9 trillion USD into circulation in support of the economy, thus helping push up inflation and pushed down the value of the US dollar. Meanwhile, the Chinese yuan (CNY) climbed to a five-year high against a basket of major partner currencies, putting pressure on the Chinese economy’s exports, despite officials continuing to warn against excessive speculation. Currently, the People's Bank of China (PBoC) has raised the CNY reference rate to a three-year high of 6.3682 CNY/USD before the trading market opened. In Vietnam, on June 2, commercial banks raised the buying rate by 13 VND to 3,580 VND/CNY and the selling rate by 11 VND/CNY to 3,693 VND/CNY compared to the closing session on May 31. According to Hieu, these are two currencies that have great influence on the exports of Vietnamese enterprises. “A decrease in the exchange rate will be detrimental to exporters because they receive US dollars and exchange them for Vietnamese dong, which will reduce their profits, but will benefit importers because they use US dollars for payment,” Hieu said. Currently, Vietnam’s export turnover is still on the rise compared to the same period last year. According to the General Statistics Office, the export turnover was estimated at 26 billion USD in May, up 35.6 percent year-on-year, bringing the total value in the first five months of this year to 130.94 billion USD, up 30.7 percent over the same period last year. The FDI sector (including crude oil) earned 97.88 billion USD in exports, up 36.3 percent year-on-year, accounting for 74.8 percent of the total. This is a remarkable achievement in the context that the COVID-19 pandemic still has great impact on the economy in general and import and export activities in particular. Experts also pointed out that the decrease in the exchange rate has had a positive influence on people’s psychology and the psychology of the financial market. People and investors believe in the stability of the Vietnamese dong. This greatly reduces the situation that people choose to store their assets by buying foreign currencies, contributing to repelling dollarisation in society. The stable exchange rate as well as the clear governance of the State Bank of Vietnam has made commercial banks more convenient in implementing their foreign currency trading strategies.

Fluctuation within a stable range

Perhaps what investors are most interested in is that Vietnam has been removed by the US government as a currency manipulator in its semi-annual report in mid-April. After four months of being labelled as a currency manipulator, Vietnam quickly got rid of the accusations from the US Department of Finance, creating favourable conditions for managing its foreign trade policy and the exchange rate more flexibly. Regarding the exchange rate situation in the coming time, the Vietcombank Securities Limited Company (VCBS) said that the foreign currency market and exchange rate is expected to enjoy more favourable developments thanks to an abundant foreign exchange supply. VCBS experts forecast that in 2021, the exchange rate will fluctuate within +/- 0.5 percent. Bao Viet Securities Company (BVSC) experts also said that the positive movement of Vietnamese dong partly reflects Vietnam’s well control of the pandemic as well as economic development, good inflation control and the trade surplus./.