After a long stabilisation period, the foreign exchange rate suddenly rises, leading to the increase of gold price. Risk concerns make the domestic market reverse the world trend. Despite the strong commitment from state’s agencies, the market confidence is under challenges.
In the middle of May, the rate reached almost 21,190 VND /USD which is the highest level in fluctuations in exchange rate USD /VND in early December. 2013. Not that, the price of USD at the free market in 20th May has increased over VND21,370, the buying price in banks is VND21,100.
The exchange rate makes the gold price significant increase even though there are no strong changes in demand and supply and domestic gold price has rocketed compared with foreign one; sifted gold prices reached the peak of 3 months at VND36.8 million /tael. Along with that, the gap between domestic and world prices becomes wider.
On 22nd May, the gold price continued to remain its downtrend, DOJI Corporation listed SJC gold price for Hanoi market at VND36.38 million /tael (buy-in) and 36.5 million / tael (sell-out) compared to previous gold price from VND37.10 million to VND36.95 million.
Huge price changes compared with world prices created risks to gold buyers these days. Yet many people still continue to buy gold because of its physical properties in response to market fluctuations.
Reasons for this exchange rate fluctuation are not derived from policies or the operation of the economy, but strong impacts of insecure political events in the continental shelf and special economic zone of Vietnam along with extremists who robbed and destroyed foreign invested enterprises in Binh Duong and Dong Nai and fights in Vung Ang (Ha Tinh). These events have big influences on gold price and USD in terms of customers’ confidence, on the other hand, effect to operation of some FDI enterprises.
Another cause is that the stable gold price in long term has led to the subjective of commercial banks. Some banks use negative foreign currency to enjoy exchange difference between VND and USD. When changes suddenly come, banks have to close negative foreign currency, creating certain pressure. This also occurs in the same way with businesses. As exporters also expected no exchange rate fluctuations, they sell USD to enjoy exchange difference between VND and USD. When there are changes, they also closed contracts before its term. Previously, banks also offer products for VND loans with USD interest rates. Banks must use negative state, using converted VND for loans. And now as there are fluctuations to exchange rate, they rush to take actions, putting more pressure on the exchange rate.
However, above reasons are only "activated" when tensions in the East Sea are creating psychological problems that can cause unexpected impacts. Unstable market sentiment and confidence is the premise of price fluctuations that people are directly affected.
People and businesses need to calm down because exchange rate is still in the control. Demand –supply tensions are really clear as banks put the buy-in price equal or same with the sell-out price, with the same amplitude ceiling or even over the ceiling. Presently, the buy-in price is lower than the sell-out price from VND60-70 dong, exchange rate fluctuations USD / VND remains within narrow limits in the amplitude of + / -1 percent allowed. The trading level remained fairly deep below the ceiling and much lower than previous peaks; difference between the exchange rate on the free market and commercial banks is not too large.
Interbank currency market also recorded strong fluctuations, but foreign currency liquidity throughout the system is in good condition. Rates remained stable for more than 2 years, at the same time, the foreign currency reserves of the central bank has a significant increase. Foreign exchange reserves is up to US$40 billion, helping the central bank to intervene when the market changes. Supply and demand of foreign currency have nothing unusual. From the beginning of the year, Vietnam still enjoys an export surplus.
Before the evolution of the exchange rate, the central bank has quickly issued a statement emphasising that despite the complicated situation of the East Sea, the market of currency, foreign currency and gold remained basically stable; banking system is still operating normally and safely domestically and internationally.
The central bank has been monitoring and are willing to actively take all necessary measures to maintain the stability for money, foreign exchange and gold market. SBV affirmed that there always have security solutions for credit institutions, branches of foreign banks operating in Vietnam. SBV also advised people to be cautious when deciding to perform purchasing and selling transactions of foreign currency and gold, deposits in order to avoid economic losses for themselves and the society in general.
It seems that what happens in the market recently has nothing unusual; fears appear due to people being too familiar with stability. Sudden fluctuations partly make commercial banks and the central bank heighten their vigilance in risk management. With fluctuations requiring not only to relieve one’s mind but also to meet market’s demands, the central bank has much experience in gold auctions on end before. This creates great confidence to the market.
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