Market braced for dong devaluing

“However, the common attitude is to hoard dollars and look forward to the central bank’s depreciation movement”

The domestic market is braced for a further depreciation of the Vietnamese dong before Tet.

Local banks and enterprises are preparing for a 2 per cent dip in the dong against US dollar before the national holiday Tet in early February 2011, which would bring the total depreciation of the dong to 7.6 per cent this year.

“There is a market consensus that further Vietnamese dong depreciation before Tet would be in the range of 2 to 5 per cent due to market pressures,” said Trinh Hoai Giang, deputy general director of Ho Chi Minh City Securities Corporation.

A BIDV report, showed exchange rate between US dollar and Vietnamese dong had settled down a week after the rate topped to VND19,860 per US dollar on inter-bank market on October 7, increasing 360 points during the last two weeks. The black market rate reportedly reached VND19,930 per dollar.

“However, the common attitude is to hoard dollars and look forward to the central bank’s depreciation movement. Demand surplus supply status quo will maintain and the rate will go straight to VND20,000 per US dollar,” said a BIDV official.

After the central bank allowed for gold imports of about three tonnes on October 7, the heat on the US dollar demand was cool a day after as inter-bank market rate was down by 60 points to VND19,800 per US dollar. The BIDV report said that in the local banking system, US dollar balance is still positive with around $350 or $400 million.

However, the market is waiting for further depreciation, leading the rate to further climb to around VND20,400 on the black market. US dollar supply and demand imbalances stem from enterprises’ US dollar loans maturing at a time when gold speculators were hunting greenbacks.

Dollar supply from gold exports has been plugged as the government disallowed gold exports from September 27 as domestic gold price was higher than the world market.