The Vietnamese banking authority may have to sell more foreign currency if the US dollar keeps appreciating.

The State Bank of Vietnam (SBV), the country’s central bank, has sold US$2.5 billion in foreign currency to commercial banks since mid-July and may make further intervention in the time to come, in a bid to meet demand for hard currency and limit the depreciation of the Vietnamese dong, a brokerage house has said.

After pumping US$1.97 billion worth of foreign currency to the market from July 13 to 20, the Vietnamese banking regulator sold another US$0.5 billion last Friday (August 3), Ho Chi Minh City Securities (HSC) was quoted by VnExpress as saying.  

The continued depreciation of the dong forced the SBV to intervene in the forex market, the brokerage said.

The USD/VND rate in the interbank market continued to trend upwards, ending last week at 23,305, up 0.35% from the previous week and 2.51% from the start of this year. Meanwhile, the exchange rate in the free market reached 23,500 dong for one US dollar, climbing 0.42% from a week earlier and 3.39% from early 2018.

Two main factors behind the weakening of the dong against the greenback last week were the devaluation of the Chinese yuan, which has lost 5.68% in value from the beginning of 2018, and the US Dollar Index (DXY) soaring to breach the 95-mark, according to HSC.

The largest downside risk to the dong is when the DXY, which measures the value of the US dollar against some of the foreign currencies, keeps going up and surpasses 97, HSC analysts said. The index breached the 97-mark in 2015 and 2016 and the dong devalued 5% and 2%, respectively.

The brokerage forecast the USD/VND rate to reach 23,300 by the year-end if the DXY stays below 95, and to jump to 23,500 if the index breaks through 97.

In those scenarios, the SBV is predicted to sell an additional US$6 billion to US$12 billion in forex besides the abovementioned US$2.5 billion, according to HSC.

The SBV fixed the benchmark USD/VND rate at 22,671 on August 8, down VND5 from a day earlier, after leaving the rate unchanged during the previous four days.

Hanoitimes