Dollar surges to VND16'200

The local foreign exchange market witnessed a strong surge of the dollar against the local currency by end of last week and early this week.

The market was trading the greenback at VND16,180 to the dollar in the first days of last week, but the hard currency suddenly rose up significantly last Friday to close last week at VND16,210.

The big movement was attributed to a high dollar overnight interest rate traded since late last week till now. Inter-bank dollar interest rate for very short tenors (from overnight to two weeks) was at around 6% which almost twice the dong's overnight rate.

Consequently, no banks would like to keep the USD/VND short position while the market has still seen high demand for dollars from importers.

This movement is also recorded as one of the biggest depreciation on a daily basis (0.2% this time) in the last couple of years.

With the trading level at VND16,210 to the dollar at the moment, the dong has lost 0.9% versus the greenback in the year to date.

Meanwhile the exchange rate between the local currency against other major currencies continued to fluctuate broadly due to recent turbulence in global financial markets.

The euro dropped to VND22,120 from 22,320 one week earlier while high-yielding currencies like the Australian and New Zealand dollars also weakened sharply as declines in global equities and fears of liquidity and financing problems.

Meanwhile, the yen jumped to VND137.80 from 135.80 one week earlier since the yen strengthened broadly against the dollar by the end of last week as the current crisis in global financial markets caused big concern to investors.

After around six weeks of stability, the dong overnight rate has increased over last week. Average interbank offer rate is 3.45%, an increase of 17 basis points. Interest rates for short tenors also had similar changes, with one week offer at 3.82% (upby 18 points), and one month at 5.31% (up by 9 points).

It has been predicted that at this stage short term rates should go up, since high consumer prices are pressuring the government to implement anti-inflationary policies.

Reportedly, increasing demands for government short term T-notes and for greenbacks in the local market are driving dong interest rates up this time. Rates should keep up the same pace for this week.

Last week the State Bank of Vietnam withdrew VND6.1tril via its open market operations. This reflects a significant reduction in the amount of open market withdrawals, which were more than VND10tril every week over the last month.

This showed that surplus in the banking system has diminished thanks to new issuance of government notes of 182, 273, and 364 days.

This week should see further decrease of surplus in the system as the open market operations will be strengthened.

Source: VNE