VietNamNet Bridge – As the greenback has been soaring against the dong in recent weeks, financial commentators have suggested this may be a result of dollar speculation in the forex market.

The dollar had gained VND100-130 a dollar across banks as of mid May. It was then not until the State Bank of Vietnam (SBV) applied the new reference exchange rate of VND21,600-21,820 per dollar on May 15 that the USD started to head back to a gain of VND40-50 a dollar.

According to experts, recent irregular forex rate volatility could be attributed to dollar speculation.

The USD first traded at much higher prices in banks than on the free market. A dollar was traded at VND21,770 on May 14 in the free market, at least VND50-70 less than at most commercial banks.

Immediately after the new reference exchange rate was announced, the large gap between the commercial banks’ prices and the free market’s began to diminish.

In addition, while the dollar began to plunge against most other major currencies, it rose against the dong.

In past weeks, the greenback weakened amid the slow economic recovery in the US and the Federal Reserve raising the interest rate. The dollar has slumped to the lowest it’s been in the last four months.

The world forex rate pressure, as such, was not the reason behind the domestic soaring forex rate.

Furthermore, while forex demand started to build up, it did not come as a bolt from the blue. Forex demand was adequately met by supply.

In addition, the trade deficit showed signs of declining. The surging forex rate, therefore, did not come from the forex supply and demand, either.

Economist Nguyen Tri Hieu said while it was likely that the dollar could be speculated on at the moment, forex pressure could also “arise as a result of macro-economic factors, public debts, and trade deficit.”

“Additionally, other currencies that have been devalued against the greenback also put great pressure on the VND,” he commented.

Hieu suggested that if the greenback continues to rise in the following weeks, the SBV may well have to think about selling its dollar reserves to intercede in the forex market.

“Whilst the country’s forex reserve is rather small at present, the SBV will still need to consider selling it to intervene in the market when necessary. Also, the country needs to come up with methods to cut down on imports while bolstering exports in a bid to raise its forex reserve,” said Hieu.

Meanwhile, according to Dong A Bank chairman Cao Sy Kiem, the forex volatility that occurred in the past weeks was “well within the SBV’s forex trading band, and thus, there was no need to be worried over the swelling dollar.”

Other experts shared that as the SBV had used up the two percent trading band set for the year, the monetary authority, therefore, would not be adjusting the forex rate in the next couple of months, but it would likely be selling the forex reserve when it was deemed necessary to circumvent any dollar speculation.

In 2015, the country’s balance of payment is forecast to reach US$4-5 billion, and as the forex reserve is building up, experts are pointing to the sale of foreign currency as the best option.

Nevertheless, Hieu stated that it would be hard to keep the forex rate under control between now and the end of the year, and that the government therefore could perhaps let the state budget borrow from the national forex reserve.

VIR