19 August 2015
MACRO | FX RESEARCH | Vietnam
D
FX Flash
VND: Playing Catch-Up

The State Bank of Vietnam devalued the dong for the third
time this year, fixing the reference rate at 21,890 per
dollar. The central bank also widened the trading band by
another 1%, effectively allowing the dong to trade around
+/-3% around the daily fix.

We reckon the devaluation is meant to recover the
competitiveness of its exchange rate as well as release
some pent-up depreciation pressure ahead of a Fed rate
hike in Sep. CNYVND is now near to where it was before the
yuan devaluation, around 3500. Easing inflation pressures
gave ample room for the central bank to weaken its
currency to maintain the competitiveness of its exports.

This move was largely pre-emptive as Vietnam has
maintained positive exports growth this year. In fact, it is
the outperformer in the region. Hence, further moves in the
near term could be excessive. The widening of the trading
band has allowed more room for USDVND to fluctuate in
anticipation of the imminent rate hike by the Fed within
2015. We adjusted our forecasts after taking account its
latest move and expect USDVND to end the year around
22500.
SBV Devalues the dong by 1%
The State Bank of Vietnam devalued the dong for the third time
this year, fixing the reference rate at 21,890 per dollar. This was a
1% devaluation from the previous fix at 21,673. The central bank
also widened the trading band by another 1%, effectively allowing
the dong to trade around +/-3% around the daily fix. USDVND
jumped higher to trade around 22350, up around 1.15% for the day.
Chart 1: USDVND Jerks Towards 22350
Source: Bloomberg, Maybank FX Research
SEE PAGE 4 FOR IMPORTANT DISCLOSURES
Analysts
Saktiandi Supaat
saktiandi@maybank.com.sg
(+65) 63201379
Fiona Lim
Fionalim@maybank.com.sg
(+65) 63201374
Christopher Wong
wongkl@maybank.com.sg
(+65) 63201347
Leslie Tang
leslietang@maybank.com.sg
(+65) 63201378
VND: Playing Catch-Up
With the upper bound of the trading band now lifted to 22,547, there
could be further gains in this pair in subsequent sessions. While the lower
bound of the trading band is now at 21,233.
To bring CNYVND to where it was before the yuan devaluation
The central bank was one of the quickest to react to China’s yuan
devaluation last week, widening the trading band from +/-1% to +/-2%
around the reference rate. That effectively allows the dong to jump more
than 1% to 22100 from previous 21850. Nonetheless, CNYVND was still
hovering around 3460, 1.6% lower because of the yuan devaluation. SBV is
thus eager to bump up the CNYVND by another 1% devaluation. With that,
CNYVND is near to where it was before the yuan devaluation, around 3500.
Chart 2: CNYVND Is Bumped Up Towards 3500
Source: Bloomberg, Maybank FX Research
The latest move is clearly aimed at recovering the competitiveness of its
exchange rate as well as release some pent-up depreciation pressure
ahead of a Fed rate hike in Sep. In addition, inflation pressures are well
contained within its 5% target. That gave ample room for the central bank
to weaken its currency to maintain the competitiveness of its exports.
Chart 3: VND is still a laggard if it desires to match regional peers
YTD Move Against the USD (%)
MYR
IDR
KRW
THB
SGD
VND
JPY
INR
CNY
TWD
-17.00
-11.63
-8.67
-8.13
-5.87
-4.64
-3.75
-3.46
-3.12
-2.47
-18.00
-16.00
-14.00
-12.00
-10.00
-8.00
-6.00
-4.00
-2.00
0.00
Source: Bloomberg, Maybank FX Research
19 August 2015
2
VND: Playing Catch-Up
Chart 3 shows that even with the recent devaluation, VND has depreciated
4.7% against the USD, lagging behind regional peers including SGD, THB,
KRW, IDR and MYR. However, FX competitiveness is a means to an end, not
an end in itself. More important is its impact on exports performance.
Clawing Back its FX Competitiveness
In fact, this move was largely pre-emptive as Vietnam has maintained
positive exports growth this year. Note that 10% of its total export demand
comes from China and the recent yuan devaluation has made their goods in
China dearer. The latest dong devaluation brings the CNYVND back to
where it was before the yuan devaluation, keeping export earnings intact.
Cashew exporters were especially concerned as China raised the valueadded tax on cashew ahead of mid-autumn season, on top of the
devaluation. In addition, there were also concerns about how much the
end demand for Vietnam’s fishery products will weaken amid significant
depreciation in regional currencies.
Chart 4: Vietnam’s exports is an Outperformer
Vietnam
Singapore
Malaysia
Philippines
India
Indonesia
China
Korea
60.0
50.0
40.0
30.0
20.0
Vietnam, 12.3%
10.0
0.0
-10.0
-20.0
7/2015
5/2015
3/2015
1/2015
11/2014
9/2014
7/2014
5/2014
-30.0
Source: Bloomberg, Maybank FX Research
Looking Forward
We do not rule out further devaluations should the Fed lift-off trigger more
FX volatility than expected. However, the recent adjustment to the
trading band to +/-3% of the reference rate has allowed more room for
USDVND to fluctuate in anticipation of the imminent rate hike by the Fed
within 2015. In addition, Vietnam’s export sector is an outperformer in the
region. As such, we think further devaluation within the year to boost the
sector would be a tad excessive. Taking into account its latest move, we
have adjusted our forecasts accordingly, expecting USDVND to end the
year around 22500. Our projections take into account another 1%
devaluation early next year and SBV to narrow trading band to +/-2% of
reference rate once the FX market stabilizes, possibly in 2Q next year.
USD/VND
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
22500
(22090)
22500
(22090)
22800
(22300)
22500
(22300)
22500
(22100)
22500
(21300)
Previous Forecast in Parenthesis
19 August 2015
3
VND: Playing Catch-Up
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Published by:
Malayan Banking Berhad
(Incorporated in Malaysia)
Saktiandi Supaat
Fiona Lim
Leslie Tang
Christopher Wong
Head, FX Research
Senior FX Analyst
Senior FX Analyst
Senior FX Analyst
saktiandi@maybank.com.sg
Fionalim@maybank.com.sg
leslietang@maybank.com.sg
wongkl@maybank.com.sg
(+65) 63201379
(+65) 63201374
(+65) 63201378
(+65) 63201347
19 August 2015
4