Foreign exchange rates likely to rise amidst US-China trade war
Foreign exchange rates are likely to rise strongly due to concerns that the US-China trade war may be escalating, said Director of the Vietnam Institute for Economic and Policy Research (VEPR) Nguyen Duc Thanh.
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The official said so while releasing a report on Vietnamese macro-economy for the second quarter announced by the VEPR under the University of Economics, an affiliate of the Hanoi National University, on July 11, affirming that the US and China are particularly significant trade partners to Vietnam.
While the US is the largest importer of Vietnamese goods, accounting for nearly one-fifth of Vietnam’s total export revenue, Vietnam also imports the most goods from China with roughly a quarter of the total import value.
Once the Chinese yuan loses value, Vietnam’s trade balance with China will be affected as low-cost Chinese goods will flood into the country.
In the face of the US Federal Reserves (Fed)’ monetary tightening and Chinese yuan depreciation, Thanh suggested reducing the rate of the Vietnamese dong to the US dollar, which should be lower than the reduction in rates between Chinese yuan and US dollar.
VEPR analysts pointed out that as a major importer of Chinese materials for processing and export, Vietnam could gain some advantages to facilitate these exports.
The report said the Fed’s second interest rate hike in the second quarter of this year was one of the key factors pushing up US dollar prices and depreciating the domestic currency, thus affecting the US dollar-Vietnamese dong exchange rate in the period under review.
The report went on to say that the foreign currency reserve (FCR) stands at US$63.5 billion, equivalent to nearly 13 weeks of imports, and is the minimum national FCR recommended by the International Monetary Fund.
It suggested that Vietnam should accumulate more foreign currency reserves to stay confident in the global integration process.
