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Dollar rises, dong weakens on gold hoarding
The Vietnamese dong weakened almost 1 percent on Monday after holding steady for months against the dollar following a gold hoarding panic over the weekend, but analysts say the trend will be short-lived.
State-run Vietcombank said it had lowered the dong against the dollar on Monday, cutting the selling rate to VND20,810 from VND20,660 on Sunday, after a period of stability.
The foreign exchange rate was at its lowest since an 8.5 percent devaluation on Feb 11, with the mid-point rate now standing at VND20,608 per dollar, the central bank said in a report.
Gold prices made a record jump over the weekend to up to VND44.4 million (US$2,158) a tael on Monday, up by between VND2.15 million and VND2.5 million per tael, based on the quotations by gold traders.
A foreign exchange analyst in Tokyo Mitsubishi bank said the rise of dollars was due higher gold price.
"Other cash flow activities are normal. I don't see any other reason for that," he said. "The dollars market and the gold are linked together," said economist Alan Pham at VinaSecurities. "I think dollar rate and gold price will begin to go back to normal within this week as the nature of speculative attack is to unload quickly," he said, noting that the central bank's building up foreign reserves in recent months should help prevent any major falls of the dong.
As the domestic gold price is up to VND1.7 million above world price, the speculative force in the gold market is obvious, and some investors could soon unload their holdings and take profits, Pham said.
Vietnam's central bank has bought nearly $4 billion so far this year to add to the country's foreign reserves and would continue to increase the level by the year end, the government said in July.
The dong may fall up to 9 percent in the next four months due to higher demand for dollars, said economist Dinh The Hien, director of the Institute of Information and Business Research.
"As companies are borrowing more dollar loans and dollars have been withdrawn from banks, if the government does not cope with it well, I'm not surprised if the exchange rate can rise to VND22,500 by the year end," he said at a weekend conference.
But Pham said the central bank had prepared enough foreign reserves to defend the dong, having taken a lesson from last year.
"Looking at five to six months ahead I'm optimistic that the central bank can defend the dong."
The State Bank of Vietnam said by July 20, dollar deposits decreased 3.29 percent from June and dong deposit increased 0.51 percent, while dong loans fell 0.88 percent from June while dollar credit rose 1.96 percent.
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