Fed interest rate hike has little impact on VND

By Van Khe
Wed, May 11, 2022 | 12:20 pm GMT+7
Remittances to Vietnam reached $1.8 billion in Q1/2021, up 14% year-on-year, according to the State Bank of Vietnam. Photo by The Investor/Trong Hieu.

Remittances to Vietnam reached $1.8 billion in Q1/2021, up 14% year-on-year, according to the State Bank of Vietnam. Photo by The Investor/Trong Hieu.

The Vietnamese dong remained unaffected while most emerging-market currencies declined against the U.S. dollar following the U.S. Federal Reserve’s interest rate hike.

The dollar maintained its upward trend last week, with the U.S. Dollar Index (USDX) rising 0.5%. Meanwhile, key international reserve currencies plunged deeply, with the British pound plummeting 1.9% against the dollar.

Most emerging currencies also failed to avoid the loop, with the Chinese yuan dropping 1.1%, the Indian rupee down 0.6%, and the Thai baht down 0.34%.

These trends were extended to Monday, with the USDX rising an additional 0.087%, while the yuan and pound fell 1.1% and 0.24%, respectively.

In contrast to other nations’ downtrends, the Vietnamese dong remained flat throughout last week and Monday.

The positive supply of dollars, with Vietnam’s trade surplus hitting $2.5 billion and foreign direct investment disbursement rising to $5.9 billion in the first four months, supported the dong, according to Saigon Securities Incorporation. Remittances remained strong in the first quarter, reaching $1.8 billion, up 14% year-on-year, the State Bank of Vietnam reported.

In the interbank market, the dollar/dong exchange rate was around VND22,960, while commercial banks closed the previous week with a buying rate of VND22,780 and a selling rate of VND23,090, both down VND5.

In contrast, the free market’s exchange rate jumped 90 points following weeks of sideways movement, with buying and selling rates reaching VND23,555 and VND23,595 respectively.

The global gold price declined 0.75% while the Vietnamese price remained unchanged, resulting in the largest discrepancy of VND18 million ($780) per tael of gold between Vietnam and the global market (1 tael = 1.33 ounce).

In early May, the Fed raised interest rates to around 0.75%-1%, up 0.5%, the largest increase since May 2000, to confront its highest inflation rate in 40 years. It was expected to climb to 2.75-3% by the end of the year, according to CME Group, one of the world's leading derivatives marketplaces.

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