Foreign exchange rates are likely to rise strongly due to concerns that the U.S.-China trade war may be escalating, said Director of the Vietnam Institute for Economic and Policy Research (VEPR) Nguyen Duc Thanh.

VEPR Director Nguyen Duc Thanh (M).

He made this statement while releasing a report on Vietnamese macro-economy for the second quarter announced by the VEPR under the University of Economics, an affiliate of the Hanoi National University, on July 11, affirming that the U.S. and China are particularly significant trade partners to Vietnam.

While the U.S. is the largest importer of Vietnamese goods, accounting for nearly one-fifth of Vietnam’s total export revenue, Vietnam also imports the most goods from China with roughly a quarter of the total import value.

Once the Chinese yuan loses value, Vietnam’s trade balance with China will be affected as low-cost Chinese goods will flood into the country.

In the face of the U.S. Federal Reserves (Fed)’ monetary tightening and Chinese yuan depreciation, Thanh suggested reducing the rate of the Vietnamese dong to the U.S. dollar, which should be lower than the reduction in rates between Chinese yuan and U.S. dollar.

VEPR analysts pointed out that as a major importer of Chinese materials for processing and export, Vietnam could gain some advantages to facilitate these exports.

The report said the Fed’s second interest rate hike in the second quarter of this year was one of the key factors pushing up U.S. dollar prices and depreciating the domestic currency, thus affecting the U.S. dollar-Vietnamese dong exchange rate in the period under review.

The report went on to say that the foreign currency reserve (FCR) stands at USD 63.5 billion, equivalent to nearly 13 weeks of imports, and is the minimum national FCR recommended by the International Monetary Fund.

It suggested that Vietnam should accumulate more foreign currency reserves to stay confident in the global integration process./.

VNF/VNA