The State Bank of Vietnam (SBV), the country's central bank, is predicted not to devalue the Vietnamese dong (VND) strongly (over 3%) to avoid the risk of being put into the US's currency monitoring list, particularly following the unexpected plummet of China’s yuan yesterday against the USD, according to Bao Viet Securities Company (BVSC).
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Yesterday's plummet marked the first time Chinese currency surpassing the market’s psychological “break point” of 7 CNY/USD since 2009.
Investors have been considering 7 CNY/USD a sensitive psychological resistance zone, which was even maintained stable amid the US-China trade conflict with the first US imposition of import tariff on Chinese goods in June last year.
Before August 5, yuan lost about 0.5% since the beginning of the year. Washington’s threat to impose a 10% tax on US$300 billion worth of Chinese goods starting early September is the main reason for CNY’s strong decline.
BVSC expected that China is somehow motivated to let the CNY tumble to support exports, but at the same time does not want a strong depreciation scenario for CNY. China does not want to activate a stronger wave of foreign capital withdrawals, causing more macroeconomic instability and at the same time undermining the country's foreign exchange reserves as in 2014 – 2015.
In the short term, with CNY’s unexpectedly sharp drop today, it is likely that China will soon take measures to stabilize the sentiment and "soften" CNY movements. However, the USD/CNY exchange rate breaking through 7 will place the currencies of other emerging markets under pressure.
In a latest move, the People’s Bank of China (PBOC) today set the daily currency fixing stronger than analysts expected and announced the planned sale of yuan-denominated bonds in Hong Kong, Bloomberg reported.
The moves, which came after the US labeled the country a currency manipulator, helped drive the yuan up 0.2% a day after it sank the most since 2015. The China’s central bank also rejected the accusation it manipulates the yuan.
