Vietnam’s dong fell to the brink of its permitted trading range as China’s yuan declined to a four-year low, putting pressure on Asian currencies before an expected increase in U.S. interest rates.
The dong slid as much as 0.2 percent to 22,546 a dollar, before trimming its loss to trade at 22,519 as of 5:27 p.m. in Hanoi, according to prices from local banks compiled by Bloomberg. It can trade as much as 3 percent on either side of the official reference rate, which has been left unchanged at 21,890 since the third devaluation of this year on Aug. 19. The weakest level permitted by the current range is 22,547.
Emerging-market currencies are weakening across Asia this month as futures indicate the Federal Reserve will raise interest rates this week. A slide in the yuan is gathering momentum as signs build that Chinese policy makers aren’t prepared to target stability versus the greenback and this is having knock-on effects on regional exchange rates. An Aug. 11 yuan devaluation prompted Vietnam to double the dong’s trading band to 2 percent a day later, and led to a further widening on Aug. 19 that was coupled with a 1 percent weakening of the reference rate.
“The dong dropped due to the yuan’s decline and as the Fed meeting is coming close,” said Dao Duc Manh, a foreign-currency trader at National Citizen Bank. “This does put pressure on Vietnam’s central bank but I think it will still be able to keep the reference rate stable for the rest of the year as it has previously stated.”
The timing of any U.S. rate increase “will not impact the orientation of stable exchange rates” for Vietnam, the Asian nation’s central bank said in September. Vietnam has enough room to be flexible amid negative movements in both international and domestic markets until early next year and the central bank stands ready to sell foreign currency when necessary to ensure supply and demand are in balance, it said.
Vietnam’s five-year government bond yield was little changed at 6.66 percent today, according to daily fixings from banks compiled by Bloomberg. The three-year yield was steady at 5.89 percent.