USD soars, CNY falls to record low: Year-end threat

The US dollar has increased sharply after the Donald Trump “storm” and the Chinese Yuan has fallen to its lowest level in the past 6 years… posing great risks to Vietnamese businesses and the economy.

“Storm” Donald Trump

While the world as well as Vietnamese investors and businesses are still worried about the unusual developments in the US and European markets in recent months, from the Brexit shock to the "Donald Trump" earthquake, a new storm is forming.

In the trading session on November 11, the Chinese Yuan (CNY) was set to decrease for the 6th consecutive session by the People's Bank of China (PBoC), down a total of 1% compared to the end of last week to: 6.8115 CNY to 1 USD.

In the previous session, when Mr. Trump was elected US President, with a fluctuation range of +/-2%, the CNY on the world market at times fell below the threshold of 6.8 CNY to 1 USD, the lowest level in more than 6 years.

The yuan fell to a six-year low against the dollar.

Thus, compared to the time of the shock and also the historical turning point of the exchange rate mechanism change in mid-2015, the current CNY has depreciated significantly. Previously, in 3 days from August 11-13, 2015, the PBoC lowered the reference exchange rate 3 times by 1.9%, 1.6% and 1.1% respectively, causing the CNY to decrease by a total of nearly 5% to 6.45 CNY/USD, a record low in the previous 4 years.

Since then, the yuan has steadily declined, losing a total of about 5.5%, only briefly pausing during China's efforts to include the currency in the International Monetary Fund's (IMF) currency basket.

The yuan is expected to continue to depreciate “both domestically and internationally” in the coming time, even if US President-elect Donald Trump implements tough trade policies with China. Previously, on CNN Money, a hypothesis was put forward that China sharply devalued the yuan as an economic stimulus measure. This is the fastest way to revive domestic factories.

Dr. Nguyen Tri Hieu, an expert in the field of finance and banking, said that the CNY is falling sharply while the VND does not fluctuate much against the USD. This is disadvantageous for Vietnam because Chinese goods will become cheaper and cheaper when imported into Vietnam, and Vietnamese goods sold to China will become more expensive. This is a great pressure on the VND.

In fact, the USD/VND exchange rate has remained almost unchanged for many months, only hovering around 22,290 VND (bank buying) and 22,370 VND (selling), even decreasing compared to the end of 2015.

Previously, at the beginning of the year, many securities companies expressed concern about the unknown of China, especially the trend of devaluing its currency. If the VND does not decrease, domestic enterprises' exports will face difficulties, and on the contrary, many people are worried about instability and foreign money may be withdrawn from the stock market.

Shock for Vietnamese businesses?

Assessing the possibility of exchange rate fluctuations, Mr. Huynh Minh Tuan, head of brokerage department of Ho Chi Minh City branch of Vndirect Securities Company, said that USD/VND will not fluctuate much because Vietnam's balance of payments is quite good, foreign exchange reserves are also quite high (more than 40 billion USD, the highest ever).

Trump's future trade policies could affect to the world

Dr. Hieu also admitted that USD liquidity is still good, with no signs of tension. However, with the depreciation of the CNY (the People's Bank of China is gradually floating the CNY), the VND may have to adjust against the USD to support exports.

According to Mr. Huynh Minh Tuan, in recent times, many currencies have fallen sharply, not only the CNY but also the British Pound, Euro and most recently the Mexican Peso... have all fallen. The decline may increase after Mr. Trump fulfills his commitments to reduce taxes and prioritize more labor for Americans...

In a world where most countries boost economic growth by boosting exports, the rapid depreciation of some currencies is causing many countries to be nervous. The only major power that is seeing its currency strengthen is the United States.

However, exporting to this country in the coming time may become increasingly difficult. If in the past, the US imposed non-tariff barriers, under Donald Trump, this president is likely to implement an extreme trade protection policy.

To solve this problem, according to Mr. Hieu, it is necessary to review the USD/VND exchange rate. The level of adjustment depends on many factors such as the rate of depreciation of the CNY, the Fed's decision in December and the geopolitical situation in some parts of the world. The adjustment level could be around 1%.

Regarding the extreme trade protectionism of the US, according to Mr. Hieu, Vietnam also needs to “Quid pro quo”. Vietnam also needs to import more US goods in exchange for “quotas” of exporting Vietnamese goods to the US.

According to Mr. Hieu, Mr. Trump’s victory was unexpected and many people are worried that Mr. Trump will lead the United States into a new “world order” filled with confrontation and division. The reactions of the financial markets in the past few days have also been unusual, in the direction of loving conservatives and hating financiers. And that is why everyone needs to “tighten your seat belt”.

According to Vietnamnet