What impact do many foreign currencies depreciate on import and export of Vietnamese goods?

Seafood exports to the EU increased in the first half of 2022. Photo: T.H

Exports tend to decrease

According to Ms. Kim Thu, shrimp market expert of the Vietnam Association of Seafood Exporters and Producers, on July 14, the Japanese yen fell to a new low record within 24 years against the dollar. The main reason why the yen fell sharply against the dollar was that investors were worried that the interest rate gap between the two economies would widen when the Fed continues to raise interest rates.

Besides, the euro also for the first time in 20 years fell and was equal to the USD. One of the reasons for the euro's depreciation was the sharp increase in gas prices and the uncertainty surrounding energy supplies from Russia related to the conflict in Ukraine, causing recession fears in the euro area.

While the US Federal Reserve (Fed) raised interest rates aggressively to reduce inflation, the European Central Bank has not made similar decisions.

When the EUR depreciates against the USD, Vietnamese businesses are not affected because most import and export transactions are in USD, the profits of buyer decrease, so they can reduce demand for Vietnamese exporters.

In addition, when the local currency weakens and imported goods become more expensive, European consumers will consider spending, choosing essential items with affordable prices.

Accounting for 12% of Vietnam's total seafood export turnover, seafood exports to the EU market in the first half of 2022 reached over US$688 million, up more than 41% over the same period last year. After increasing 58% in the first quarter of 2022, seafood exports to the EU in the second quarter slowed down with an increase of only 31%, reaching US$390 million. The trend in the second half of the year, the growth rate continued to decrease.

According to Ms. Kim Thu, the Japanese yen fell to the lowest level in 24 years against the dollar, there has been a situation where Japanese importers proposed to renegotiate import prices to compensate for their losses when the Yen depreciated or there is a situation where the customer has signed a contract before but asks to negotiate to receive the goods slowly. Having suffered a lot when the local currency depreciates, Japanese importers will also adjust their plans and import demand during this period.

Another concern, when the USD appreciates, it also means that the cost of importing raw materials will increase. This will affect Vietnamese businesses because they have to import a large amount of raw materials from abroad.

Accounting for 14% of Vietnam's total seafood export turnover, Vietnam's seafood exports to Japan in the first half of this year reached over US$800 million, up 18% over the same period.

Under inflationary pressure, seafood prices in Japan have continuously increased in recent years. Moreover, the Japanese yen depreciated, making Japanese people have to tighten their spending, so it is difficult for seafood exports to this market to have significant breakthroughs from now until the end of the year.

Enterprises flexibly choose the market

Along with the depreciating EUR, the EU is also a market with high inflation in the first half of this year. The record inflation of 8% in the second quarter shows that EU trade is in crisis, after Covid-19 and especially after trade sanctions with Russia due to the conflict in Ukraine. Inflation cast a shadow over the Eurozone, reducing the consumption demand of Europeans. Therefore, high-priced seafood products will be on the list that consumers must consider and calculate.

In the current situation of the world commodity market and foreign exchange market with many fluctuations, exporters must pay attention to the exchange rate between VND and foreign currencies in order to choose the right market for export and import, choosing a payment currency that is beneficial to business.

According to Phan Minh Hoa, Lecturer in Economics at RMIT University, in fact, the USD is still the main payment currency for most (about 60-70%) of Vietnam's import and export contracts. The impact of fluctuations in VND against other currencies is less.

In addition, there is a point to note that for some products, businesses need to import many raw materials. Therefore, if the USD increases in value, making export revenue in USD is beneficial, but conversely, import costs, transportation costs, logistics, warehousing, and debt denominations in USD also increase. Therefore, the assessment of gains and losses will depend on the specific situation of each business.

In addition, businesses need to constantly monitor exchange rate fluctuations, and update on inflation, interest rates, COVID-19, Russia-Ukraine war.

From there, businesses can choose export and import markets and diversify, choose a profitable payment currency, and gradually reduce the use of only USD.

In order to hedge against exchange rate risk, enterprises can choose banks with good trade finance ability, and use derivative financial instruments such as foreign currency futures and swap contracts, ensuring that import and export activities are scientifically planned.

According to experts, Vietnam has the highest amount of foreign exchange reserves ever, and the fact that the State Bank operates the central exchange rate and ensures liquidity in foreign currencies will help the stability of the country about VND. This helps import and export businesses not face shocks of exchange rate fluctuations.

The close cooperation of the Government, Ministries and Banks in flexibly directing, implementing prudent monetary policies, adjusting exchange rates, and reasonable stable interest rates is always very necessary for businesses in the current unpredictable situation.