Free USD is "hot" again, should stock investment channels be worried?

In the free market, according to a survey at many stores in Hanoi , the current USD buying price is around 25,400 VND/USD. The USD selling price in some places has approached 25,700 VND/USD, far exceeding the peak in October-November 2022.

Free USD "hot in hand", setting new record

For many consecutive days, USD in the free market has maintained a long streak of price increases. Surveying at many stores on Ha Trung Street, Hanoi, the USD price is being bought at around 25,400 VND/USD. The selling price of USD is also only 70-100 VND higher per dollar. In some places, the USD price is listed much higher, even approaching 25,700 VND/USD for selling .

Previously, in the last week of February, the exchange rate on the free market fluctuated strongly when it jumped to a historical peak of 25,450 VND/USD. Breaking the records recorded in the period of October-November 2022, the USD price is being bought and sold at the highest level in trading history.

On March 5, the State Bank announced the central exchange rate of the VND/USD pair applied during the day at 24,012 VND/USD, an increase of 8 VND compared to the previous listing. With a margin of +/-5% as prescribed, the floor rate is 22,811 VND/USD, the ceiling rate is 25,213 VND/USD. The USD price on the black market is much higher than the ceiling price regulated by the State Bank.

Meanwhile, the USD exchange rate at most commercial banks has increased, but the increase is only 10-15 VND/USD and is still quite a "safe" distance from the maximum allowed transaction limit. However, the USD exchange rate at banks is also approaching the peak recorded at the end of 2022, commonly at 24,850 - 24,870 VND/USD for sale.

On the sidelines of the Discussion: Stock Market: Building Foundation - Accumulating - Accelerating organized by Investment Newspaper, sharing about the factors affecting the exchange rate recently, Mr. Tran Hoang Son - Director of Market Strategy, VPBank Securities JSC, the first reason to mention is still the negative VND-USD interest rate gap that has been at a very high level for a long time, about 500 basis points.

At the same time, in the recent past, the gap between world gold prices and domestic gold prices has been quite high, creating a huge demand for gold imports, including jewelry gold and gold rings. At present, in the face of the heat of world gold prices, SJC gold bars are also trading at a historical peak (VND80.8 million/tael for sale). According to Mr. Son, this factor could cause the demand for USD to increase in the short term, causing a strong impact on the exchange rate.

Third, the story of foreign investors withdrawing capital from the stock market in the second half of last year is also a reason why the demand for USD in the market is more tense.

The USD is very hot in the free market, Mr. Son said that there are some signals to monitor in the coming time. Firstly, the Fed may lower interest rates in the second half of the year, which will narrow the gap between VND-USD interest rates. This external factor can help reduce pressure on the exchange rate. Secondly, regarding the gold market, the Government has identified the problem and may soon amend the regulations on gold market management to ensure gold supply for consumer demand, reducing the gap. This is also a factor that can reduce pressure on the exchange rate. Finally, in terms of macro balance, exports are accelerating again; the export surplus is also maintained at a good level. FDI capital into Vietnam is still growing positively, along with remittances, which are the sources of USD supply in the market. In addition, Vietnam's foreign exchange reserves are quite good at the present time. Factors that could help the USD/VND exchange rate remain stable this year, although it may still depreciate slightly.

There will be a negative impact if the local currency depreciates by more than 3%.

As of now, the VND/USD exchange rate at Vietcombank is selling at 24,850 VND/USD, up 1.76% compared to the end of 2023. The exchange rate on the free market increased by 0.32% compared to the end of 2023. The end of last year was also the time when the domestic gold market was "crazy", far from the converted world price by nearly 20 million VND/tael and only cooled down after the Prime Minister's telegram. Meanwhile, over the past two months, the JPY/USD exchange rate has increased by 6.33%; the KRW/USD exchange rate has increased by more than 3%.

In comparison to the currencies of other countries, Mr. Son said that the fact that Vietnam's domestic currency has been able to maintain a slight depreciation is a success this year. Previously, in mid-February 2024, the US Dollar Index (DXY), which measures the strength of the greenback against a basket of 6 strong currencies, reached 105 points. During that period, the VND/USD exchange rate was quite stable after the Lunar New Year holiday. At present, the USD price in the free market has heated up again when the DXY has cooled down significantly, although it is still anchored high (nearly 104 points).

DXY Index Performance Over the Past Year - Source: TradingEconomics

Assessing the impact of exchange rate movements, analysts from VPBankS said that if the VND/USD exchange rate can remain relatively stable, an increase of less than 2% will not have too much impact, and at the same time support exports, especially in the context of many currencies losing value deeply.

When the exchange rate depreciates by more than 3%, this will impact the economy as import-export businesses will be at a disadvantage in terms of exchange rate differences and may be recorded as losses due to exchange rate differences. Secondly, when the exchange rate fluctuates, it will immediately affect the foreign capital flow currently trading on the Vietnamese stock market, which may cause foreign investors to reduce their capital when the exchange rate fluctuates strongly.

In addition, the pressure on the exchange rate is also affecting the operation of monetary policy. In a newly published report on the foreign exchange market, the Center for Analysis and Investment Consulting - SSI Securities Corporation (SSI Research) mentioned the possibility that the State Bank of Vietnam will consider actions to stabilize the exchange rate. In particular, the immediate future may be the re-issuance of treasury bills. The increasing demand for foreign currency from import-export enterprises and the sale of foreign exchange reserves can also be considered.

Exchange rate developments at commercial banks and the free market from 2022 to present - Source: SSI Research

Previously, in the period from September to November 2023, the State Bank also issued treasury bills, which were also carried out in the form of interest rate bidding. Although many experts believe that the State Bank's issuance of treasury bills does not mean a reversal of monetary policy, the sentiment of investors in the stock market at that time was quite negative, significantly affecting the stock market's developments.

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