Wednesday, November 14 2018

VietNamNews

Stronger US dollar, weaker yuan weigh on trade

Update: November, 01/2018 - 08:00
Exchange rates are under pressure from the US-China trade war and the Fed’s rate hikes. - Photo dautucophieu.net
Viet Nam News

HÀ NỘI — The Vietnamese economy is walking a careful tightrope amid rapid developments around the world, especially the spiraling US-China trade war and the US Federal Reserve’s rate hikes, which are weighing on exchange rates and Việt Nam’s trade balance.

Reuters reported that China’s yuan was flat at 6.9673 per dollar on Wednesday after tumbling to a decade low on Tuesday. The yuan was driven down by worries about a slowdown of the world’s second-largest economy and a potential escalation in the US-China trade war. The Chinese currency was on track for a loss of 1.4 per cent in October, its seventh straight monthly loss - the longest such losing streak on record.

Statistics showed that China’s yuan lost 6 per cent against the US dollar from the beginning of this year and 9 per cent within the past six months.

A UBS analyst forecast that the Chinese currency could weaken further to hit 7.3 yuan per dollar by the end of 2019.

Data of the State Bank of Việt Nam showed that at the beginning of the year, the VNĐ/CNY cross rate was quoted at 3.444,86 and is now at 3.280,76, meaning that the Vietnamese đồng appreciated by nearly 5 per cent against China’s yuan.

According to Ngô Đăng Khoa from HSBC Việt Nam, the Fed’s tightened monetary policies together with weaker Chinese yuan would be major challenges for the Vietnamese đồng in the short term. In addition, the strong depreciation of the yuan against the Vietnamese đồng was also worsening Việt Nam’s trade deficit with China.

Nguyễn Đức Thành, Director of the Việt Nam Institute for Economic and Policy Research, said that with the Chinese yuan’s strong depreciation and the Vietnamese đồng tightly pegged to the US dollar, Vietnamese goods would be less competitive and Việt Nam’s trade balance might be strongly affected.

The latest updates from the General Statistics Office showed that Việt Nam ran a trade surplus of US$6.4 billion in January-October in general but a trade deficit of $20.8 billion with China.

Thành said that the Fed’s interest rate hike also puts pressure on interest rates of the domestic currency to stabilise the exchange rate and prevent inflation.

At a conference about the Vietnamese economy, Thành suggested that Việt Nam should consider a moderate-level depreciation of the Vietnamese đồng against the dollar to adapt to the US-China trade war, adding that the use of foreign currency reserve to stabilise exchange rates is only a short-term solution and might bring risks, given the thin reserves of Việt Nam, Thành said.

Despite great pressure on exchange rates in the context of the escalating US-China trade war and the Fed’s rate hikes, Việt Nam has made macro-economic stability its first priority.

The Deputy Prime Minister said at the National Assembly’s hearing on Saturday that the Vietnamese Government consistently considers macro-economic stability as its top priority, stressing that there had never been a policy to devalue Vietnamese đồng to support exports. — VNS

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