VietNamNet Bridge – The US dollar climbed to its highest peak against the Vietnamese dong yesterday morning to VND21,245 per dollar, but analysts believe that the exchange rate will stabilise.

About half a month ago, the foreign exchange market turned hot when the dollar price in the black market increased by VND10 per dollar on May 16 to VND21,270-21,290 per dollar (buying and selling prices).

The dollar price quoted by Vietcombank on the same day was 21,120-21,170. Meanwhile, the interbank exchange rate set by the State Bank of Vietnam stayed at VND21,036 per dollar.

The sharp increase in the dollar value by that time gave people a start. Prior to that, the State Bank of Vietnam promised to keep the dong/dollar exchange rate stable this year with the dong devaluation between one and two percent.

Meanwhile, by mid-May, the dollar price increased by 1.27 percent on the black market and 0.7 percent in the official market.

However, these were not the highest peaks for the dollar. Vietinbank and Techcombank on June 4 quoted VND21,246 per dollar, while prices at other banks were just VND1-2 per dollar higher or lower.

Some analysts have commented that despite the State Bank’s advice to keep calm at this moment, people still have worries about the tensions in the East Sea.

People who have idle money tend to buy dollars to preserve their assets, and commercial banks rush to buy dollars for fear about exchange rate fluctuations. And import companies try to buy dollars for fear that the dollar will be more expensive in the future.

Meanwhile, export companies, which have earnings in dollars, do not want to sell dollars at this moment because they believe the dollar price will escalate in the near future.

In May 2014, Vietnam, once again, witnessed an excess of imports over exports of $0.4 billion after it gained a trade surplus of $2 billion in the first four months of the year. This means that the actual domestic demand has increased, thus leading to the dong/dollar exchange rate fluctuations.

There is hard pressure on the exchange rate which may lead to the devaluation of the dong. The exchange rate has stabilized over the last three years, while the inflation rate in Vietnam has been higher than in other countries. As a result, the local currency has been appreciating against other currencies.

Nevertheless, though there are many reasons which may lead to the dong/dollar exchange rate adjustment, analysts still believe that the exchange rate would be stable in the long term.

In principle, the long-term exchange rate performance depends on market supply and demand. The demand is believed to be not as big as in the past once Vietnam’s trade deficit has decreased.

Meanwhile, foreign capital (in foreign currencies), including FDI (foreign direct investment), ODA (official development assistance) and overseas remittance keeps flowing to Vietnam.

The high surplus in the payment balance over the last two years has helped Vietnam increase its foreign exchange reserves to $35 billion, the highest level so far.

K. Chi