Recently, USD/ VND exchange rate has continuously increased. Statistics for the past month showed that US dollar selling price at banks had increased by about one percent.
The fluctuation of the VND exchange rate occurred at the same time the Chinese yuan exchange rate increased strongly by 2.8%. The reason was that China Central Bank actively adjusted down Chinese yuan exchange rate to support exports after the US government decided to raise import tax of $200 billion of Chinese goods from 10 percent to 25%.
According to MB Securities Joint Stock Company (MBS), if in the future, the US-China trade war continues to escalate, the Donald Trump goverment will impose a 25 percent tax rate on the remaining $325 billion of Chinese goods. China Central Bank may continue to loosen monetary policy to support the economy; Chinese yuan exchange rate accordingly will continue to weaken against US dollar.
“China is now Vietnam’s largest trading partner, with bilateral trade value of $106.6 billion in 2018 (Vietnam exported $41.3 billion to China), accounting for 23 percent of total import and export turnover of Vietnam. Therefore, Chinese yuan depreciation will put pressure on the dong to depreciate”, MBS stressed.
Not only subject to international pressure, the import-export balance also affects USD/VND exchange rate negatively. According to The Customs of Vietnam, in the period of May 1 to 15, Vietnam had an export surplus of $1.85 billion due to an increase of nine percent in export (compared to the same period last year) to $ 9.69 billion, while imports recorded a growth of 11, 9 percent reached $11.5 billion.
Thus, from the beginning of the year until now, Vietnam has trade deficit of $1 billion. The main reason leading to higher trade deficit is due to strong import demand of computer/electronics/computer components (47 percent year-on-year, to $2.2 billion) and mobile phone/ mobile phone components (19 percent year-on-year, to $509 million) group in the first half of May.
Viet Capital Securities (VCSC) judged that the increasing demand for US dollar from importers put more pressure on the dong, which was suffering when the Chinese yuan depreciated recently. However, the stability of foreign reserves ($65.5 billion; corresponding to three months of imports) would help the State Bank of Vietnam (SBV) to support the dong when necessary
In the same view, SSI Securities Corporation said that exchange rate this year would still fluctuate in the control target from the beginning of the year thanks to domestic fundamentals such as the stability of foreign exchange reserves and demand and supply of foreign currencies, despite the pressure from the international market.
On the side of SBV, Pham Thanh Ha, director of the Monetary Policy Department, said that the exchange rate had increased in recent days mainly due to two reasons. Firstly, US-China trade negotiations raised concerns about the possibility of international trade conflicts and negative developments. Secondly, the Chinese yuan price continued to decline in some days from the end of April had a strong impact on the psychology of the domestic foreign currency market, thereby putting pressure on the exchange rate.
However, following the monitoring of SBV, the market liquidity remained stable, the overall balance of foreign currency supply and demand was still relatively favourable. In the coming time, SBV would continue to closely monitor domestic and foreign market developments, administer flexible and appropriate central exchange rates, and synchronously use measures and policy instruments currency to stabilise the foreign currency market. “If necessary, SBV is ready to sell foreign currencies to intervene with an appropriate selling rate to stabilise the market, contributing to macroeconomic stability”, Pham Thanh Ha said.
