Being active with the "wave" of exchange rates

The exchange rate of USD/VND in the first 3 months of 2018.

High exchange rate

It can be seen that the exchange rate of VND and USD in the post-Lunar New Year has risen to the highest level in more than a year. Accordingly, the exchange rate of USD has continuously increased considerably, about 100 dong per USD when trading at commercial banks and on the free market. On average in early April, the VND/USD exchange rate was at around 22,750-22,850 VND/USD (buy-sell), up from 22,650 - 22,730 VND/USD (buy-sell)) of the early January 2018.

The strong increase of USD was mainly due to the fluctuation of the global economy, as the Federal Reserve System (FED) raised the interest rates. In addition, according to financial-banking expert - Dr. Nguyen Tri Hieu, USD exchange rate increases are due to the increasing inflationary pressure and high demand for foreign currency when the State Bank of Vietnam (SBV) continues to allow commercial banks to lend businesses foreign currency for export with low interest rates. Thus, the increasing exchange rate over the last period is an indispensable trend when there are many factors combining under the upward trend.

From the above developments, the National Financial Supervisory Commission forecasts that the USD/VND exchange rate in 2018 will increase slightly at the rate of 1.5-2%,

creating a competitive advantage for Vietnamese export. In addition, the financial-banking expert - Dr. Nguyen Tri Hieu stated that the exchange rate could increase by 1-3% due to many unknowns from the international and Vietnamese economic situation, especially when the USD price increases, the demand for USD will increase, forming foreign currency pressure for the foreign exchange market.

Take precautions against the exchange rate

In general, the liquidity of exchange rates in the market and commercial banks is still quite stable without stressful signs. This is due to the fact that the liquidity of the whole system has been greatly supported by the large amount of foreign currency which was bought by SBV and the net supply of 70 trillion VND in the first two months of 2018. As a result, businesses said that the purchase and sale of foreign currency is normal because the exchange rate does not increase sharply in a short time but lasts for a whole month. However, the pressure from the USD price increase also causes concern for enterprises, especially importers, if this situation continues for a long time. In addition, the exchange rate increase may affect the companies that are borrowing in dollars, especially with the ones who are applying for loans at floating rates, because how much the exchange rate increases, the capital cost of enterprises will increase, too.

Exchange rates increase or decrease with large amplitude, which has more or less affected the operation of enterprises in particular and the economy in general. Although the results of economic growth in the first quarter of Vietnam is very positive, but the risks, including the exchange rate fluctuations, need effective measures. Accordingly, businesses must be more active with the exchange rate through business plans, payment methods and financial instruments, including derivative instruments.

A good thing is that although many enterprises, especially small and medium ones still use the spot exchange rate, but the amount of derivative exchange rate has a considerable interest. As a result, in 2017, foreign exchange swaps (a transaction in which a company conducts simultaneously two transactions. One is the spot transaction to buy/sell foreign currency and the other is a forward transaction to sell/buy the above amount of foreign currency in the future) at commercial banks has increased significantly. For example, at the Vietnam Technological and Commercial Joint- stock Bank (Techcombank), the value of foreign currency swap has increased from 52,520 billion VND in 2016 to 112,757 billion VND in 2017; Vietnam Export Import Commercial Joint-Stock Bank (Eximbank) increased from over 27,200 billion VND to over 63,600 billion VND... Other banks (small and large ones) also increased 2-3 times compared to 2016.

The above results showed that enterprises are more and more interested in preventing exchange rate risks and reducing capital cost when foreign currency payment activities are facilitated by banks. Although the authorities have always pledged to control the market in stability, but now our foreign exchange rate has followed the rules of the market, so the sudden fluctuations are still occurring. Therefore, it is necessary for enterprises and management agencies to become more active to avoid the implications when the exchange rate is no longer "calm" as before.

Despite the sharp increase in the foreign exchange market in the 1st quarter, forecasting the situation of the whole year 2018, experts still have a lot of confidence in the SBV's foreign exchange control measures.

The experts from HSBC Vietnam forecast that by the end of 2018 the VND/USD exchange rate would end at 22,900 VND/USD. Generally it will be stable due to the market fluctuations have been forecasted with the long-term vision, thus sudden shocks can be avoided. In addition, the exchange rate is supported when the State Bank has sufficient reserves of foreign currency up to about 60 billion USD to regulate if necessary; the foreign capital inflows continue to be invested strongly in Vietnam; and trade balance in the 1st quarter was in favor of trade surplus with the value of 1.3 billion USD.