Forex market still in a state of flux as firms feel the squeeze

Forex market turbulence continued last week as exchange rate continued to spike.

Ho Huu Hanh, director of the State Bank’s Ho Chi Minh City branch, said the situation was due to local residents hoarding dollars waiting for further forex exchange rate increases.

“Dollars in bank accounts in the city amount to around $9 billion. Once this volume is sold to the central bank it will able to deal with the dollar demand,” said Hanh.

The branch reported that dollar buying volumes in Ho Chi Minh City in October hit $5.2 billion with a sales volume of $5.5 billion. The figures for September were $5.36 billion and $5.39 billion

Of which, local enterprises bought $2.46 billion with a sales volume of $2.48 billion. The figures actualised by credit institutions were $2.3 billion and $2.7 billion, respectively. Buying and selling volumes by individuals were around $120 million and $100 million, respectively.

The central bank confirmed that it continued selling dollars to the banking system in November. The bank sold $200 million to local credit institutions in October instead of being a net buyer in September, purchasing $300 million from the institutions.

The recent HSBC report entitled Time to give Vietnam a Second Chance read that with many of these loans maturing in the second half, onshore dollar supplies had declined. This situation is likely to continue in the coming months.

According to the report, exporters has shown a preference for using dollar earnings to pay back dollar loans, as opposed to converting to the local currency, while rising dollar lending rates and falling dong rates meant that dollar loan credit growth is limited. The fourth quarter is also traditionally a strong import season.

“These factors point to a short-term onshore dollar supply shortage, which has  and will continue to put upward pressure on the USD-VND exchange rate,” the report read.