HÀ NỘI — The đồng has strengthened against the US dollar unexpectedly in the first two weeks of trading in 2017.
This is contrary to what has happened in the previous years when the đồng's value dropped against the dollar ahead of Tết (Lunar New Year), during which time the demand for the dollar is high to meet payment requirements.
At commercial banks, the dollar has weakened by nearly 1 per cent, from VNĐ22,790 to VNĐ22,600 per dollar. In the unofficial market, the dollar's devaluation has been higher at 2 per cent, from VNĐ23,400 to VNĐ22,700 per dollar.
On January 9, the central bank even increased the reference exchange rate of the dollar against the đồng by VNĐ275 to stop the declining momentum. The State Bank of Việt Nam's intervention to prevent the đồng from strengthening too much against the dollar is a rare move. Usually, the central bank intervenes when fluctuations cause the dollar to strengthen significantly against the đồng. This was only the second time the central bank made such an intervention in the past year to curb the devaluation of the dollar. The monetary regulator lastly prevented the dollar from falling below VNĐ22,300 in early February 2016.
When the US dollar depreciates deeply, intervention is necessary to prevent the đồng's appreciation from affecting the economy's competitiveness and exports, in the context of many currencies in the Asian region being devalued significantly. Việt Nam's export turnover increased 8.6 per cent year-on-year to US$175.9 billion in 2016, missing the whole-year growth target of 10 per cent.
The devaluation of the dollar in the domestic market allows the central bank to continuously buy the currency and increase the foreign reserves, which hit a record high of $41 billion in 2016.
Experts said some factors have supported the stabilisation of the dollar/đồng exchange rate, such as an abundance of remittances at year-end, a weaker dollar in the global market and a more stable yuan.
Reuters reported that the dollar hit its lowest level in five weeks against a basket of currencies on Thursday. It said the currency was on course for its worst week since November, hit by a loss of confidence in US reflation trade a day after a press conference by US President-elect Donald Trump.
The dollar weakened 1.4 per cent against the yen to 113.76 yen, its weakest level in five weeks, while the euro hit its highest in five weeks against the dollar at $1.0684. The sterling hit a six-day high of $1.2317 against the dollar on Wednesday, rebounding from a three-month low of $1.2038.