Vietnam Devalues Dong to Protect Exports

Vietnam devalued the dong on Wednesday for the third time this year as authorities moved to bolster a languid export sector facing fresh challenges from a surprise devaluation of the Chinese yuan.

The State Bank of Vietnam (SBV) said the intervention was also in anticipation of the U.S. Federal Reserve raising rates. It widened the dollar/dong trading band for the second time in a week, underscoring concerns a weaker yuan could further inflame bloated trade deficit.

Vietnam’s economy is closely tied to its communist neighbour, with three quarters of bilateral trade worth $60 billion being imports from China.

Global markets were alarmed when China devalued the yuan by nearly 2 percent on Aug. 11, with analysts fearing a further weakening over coming months and heightened worries of a global currency war.

Vietnam lowered the official mid-point rate by 0.99 percent to 21,890 dong per dollar and widened the trading band for the second time in six days, to 3 percent from 2 percent. The SBV allowed 1-percent currency depreciations in January and May.

ANZ analysts said the devaluation was more aggressive than expected, while HSBC Vietnam welcomed the quick response.

“The move of the central bank is fast and almost unprecedented in Vietnam,” HSBC Vietnam chairman Pham Hong Hai said in a statement. “The bank is ready to handle market challenges.”

The dong, among Asia’s most resilient currencies, dropped to 22,380/22,400 per dollar on the interbank market at 0344 GMT on Wednesday, off 1.3 percent from the previous day and down 4.5 percent so far this year. Gold rose 1.3 percent to sell at 34.62 million dong ($1,547) per tael in Hanoi.

Reuters

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell