Vietnam's Dong Falls a Sixth Week as Fed Rate Hike Draws Nearby
Dong trading 0.3 percent from weaker limit of trading band
Widening budget, trade deficits weigh on dong sentiment
Vietnam’s dong fell for a sixth week, the longest run of declines since April, after the U.S. signaled it’s close to raising interest rates just as sentiment toward the currency deteriorates amid widening deficits.
The fiscal shortfall in the Southeast Asian economy has exceeded the government’s full-year target, while the trade deficit was at $4.1 billion in the first 10 months of the year, approaching the official $6 billion goal. Federal Reserve policy makers said in the minutes of last month’s meeting issued this week that “it may well become appropriate” to raise the benchmark rate in December, spurring a surge in two-year Treasury yields. Higher U.S. borrowing costs prompted Vietnam to postpone a planned dollar bond sale this week.
"The dong has weakened primarily due to the global strengthening in the dollar caused by near certainty the Fed will raise interest rates in December," said Alan Pham, the Ho Chi Minh City-based chief economist at VinaCapital Group, the nation’s biggest fund manager. "When investors are nervous about dong weakness they look for dollars.”
The currency dropped 0.2 percent from Nov. 13 to 22,465 versus the greenback as of 4:40 p.m. in Hanoi and has lost 1.2 percent in the past six weeks, according to prices from local banks compiled by Bloomberg. It was steady on Friday and was 0.3 percent from the weaker end of the 3 percent band in which the dong is allowed to trade each day from a central bank fixing.
The reference rate has remained at 21,890 a dollar since the currency was devalued for the third time this year on Aug. 18.
The shortfall between state revenue and spending has widened to about 5.5 percent of gross domestic product in 2015, compared with the official goal of 4.5 percent, as income from taxes and oil falls, Finance Minister Dinh Tien Dung told the legislature this week. The trade deficit increased
Local-currency bonds rose this week after the delay to the $3 billion global bond. The finance ministry now seeks to increase domestic debt sales to finance the budget deficit, Dung said.
Vietnam resumed offerings of sovereign notes this week with maturities of less than five years, and sold all of the 6 trillion dong ($267 million) of three-year securities on offer on Nov. 18. That took State Treasury issuance to 127.4 trillion dong this year, compared with the full-year goal of 250 trillion dong and a year-on-year drop of 33 percent, according to an e-mailed statement from the Hanoi Stock Exchange.
The three-year yield fell one basis point this week to 5.93 percent and the five-year yield dropped by the same amount to 6.68, according daily fixings from banks compiled by Bloomberg.