As US dollar price soars and yuan plummets, year-end threat looms
The sharp appreciation of the US dollar after the news about the US election and the fall of the Chinese yuan to a 6-year low could create risks for Vietnam’s economy.
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While Vietnamese businesses have been worried about the unpredictable US and European markets in recent months, from Brexit to the US presidency, a new ‘typhoon’ has been taking shape.
The Chinese yuan on November 11 fell further for the sixth consecutive trading session to 6,8115 yuan per dollar, which meant a 1% depreciation compared with the end of last week.
In the previous session, when Trump won the US election, with the trading band of +/- 2%, the Chinese yuan dropped to below the 6.8 yuan per dollar threshold, the lowest in the last six years.
As such, compared with mid-2015, when China made a breakthrough in its exchange rate policy, the yuan has been depreciating sharply.
On August 11-13, 2015, PBoC three times adjusted the reference exchange rate by 1.9%, 1.6% and 1.1%, depreciating the Chinese yuan by 5% to 6.45 yuan per dollar.
Since then, yuan has been depreciating steadily and has lost 5.5% more in value. The downward trend only stopped for some days when mass media reported that China was trying to bring yuan into the IMF’s currency basket.
The Chinese yuan is predicted to continue depreciating in both China and overseas in the time to come, especially if US President-elect Trump implements tough trade policies with China.
Prior to that, on CNN Money, an assumption was made that China would devaluate the yuan as a measure to stimulate the economy. This was described as the quickest way to revive domestic factories.
Nguyen Tri Hieu, a banking expert, noted that the Chinese yuan depreciated sharply when the dong/dollar exchange rate was stable. This is a disadvantage for Vietnam because Chinese exports to Vietnam would become cheaper, while Vietnam’s exports to China would be more expensive.
The dong/dollar exchange rate has not been fluctuating in many months, hovering around VND22,290-22,370 per dollar (buy & sell prices).
Earlier this year, securities companies, in their reports, all showed concerns about the ‘Chinese unknown’, putting emphasis on the yuan devaluation trend.
If Vietnam does not devalue the dong, Vietnam’s exports would meet difficulties. If Vietnam decides to devalue the dong, this may cause concerns about the uncertainties of the currency and withdrawal of foreign capital from the stock market.
Hieu said that though the dollar liquidity is still good, Vietnam may think of devaluing the dong to boost the exports.
