Vietnam Currency Discussion Board

[RICK C]

Monday, July 21, 2008
Vietnam Dong Gains Most in Nine Years as Banks Sell Dollars


Vietnam's dong climbed the most in nine years against the dollar after lenders and exporters sold the U.S. currency to meet local funding needs. Government bonds gained.

The currency was at 16,640 per dollar as of 4:10 p.m. in Hanoi, from 16,795 on July 18, according to data compiled by Bloomberg. Today's 0.92% advance marked its best one-day performance since April 1999.

Dong liquidity is very tight and interest rates are high, and with most banks short of dong, they tend to need to sell dollars to get dong,'' said Nguyen Hoang Son, a foreign-exchange trader at Citigroup Inc. in Ho Chi Minh City. Exporters also cut bets that Vietnam's currency would resume a losing streak that drove it to a record low earlier this month, he added.

The currency has rebounded 1.2 percent since reaching 16,850 per dollar on July 9, the weakest level since at least 1993. Speculation inflation will slow from a 16-year high also helped provide some support for the dong today.

Vietnam's consumer price index will rise by about 1 percent this month from June, Nguoi Lao Dong newspaper reported, citing Le Xuan Nghia, general director of the central bank's banking development strategy department. That's less than last month's 2.1% increase and may help bring the nation's inflation rate down from June's 26.8%, which was the highest since at least 1992 and more than triple the level of a year earlier.

Vietnam's economy also shows signs of strengthening in the second half and the exchange rate has become more stable, Nghia was reported as saying. The currency slumped to 16,850 per dollar on July 9, the weakest since at least 1993.

Fuel Increases

In the market we heard inflation this month would be about 1.2 percent,'' said Duong Minh Duc, a fixed-income trader at the Ho Chi Minh City-based Saigon Securities Inc.

Brokerages including Citigroup said the dong retraced much of its gain in the afternoon after fuel price increases announced today by the government fanned speculation inflation will gather pace. Such a rebound was not recorded in data compiled by Bloomberg.

The government raised the price of gasoline by 31% and that of kerosene by 44% to reflect higher crude oil costs, prompting HSBC Holdings Plc to predict that inflation would exceed 30% next month.

The State Bank of Viet Nam said on its Web site it has sufficient foreign currency to meet domestic demand and urged people not to rush to buy dollars. The central bank fixed a daily reference rate of 16,500 a dollar, compared with 16,501 on July 18, its Web site said. The currency is allowed to trade up to 2% on either side of the rate.

Further Weakness

Non-deliverable forward contracts indicate traders are betting the dong will drop 12% against the dollar to 18,990 in the next 12 months.

Forwards are agreements to buy and sell assets at current prices for delivery at a specified time and date. Non- deliverable contracts are used for currencies that can't be freely converted and are settled in dollars.

The Southeast Asian nation's benchmark bonds gained for a fourth straight day today. The yield on the five-year notes fell 40 basis points to 18.83% as of 4:30 p.m. in Hanoi, from 19.23% on July 18, according to a daily fixing price from 10 banks compiled by Bloomberg. A basis point equals 0.01 percentage point and yields move inversely to prices.

http://www.vnbusinessnews.com/2008/07/vietnam-dong-gains-most-in-nine-years.html