The US dollar has strengthened after the US Federal Reserve (Fed) announced it would raise rates by a quarter of a percentage point following its meeting in mid-December. Yet the greenback’s performance was inconsistent last week, losing value against the euro, Japanese yen and Swiss franc, but gaining value against the British sterling and the commodity currencies.

Despite the short-term fluctuations, there are reasons why many are bullish on the dollar. The Fed appears hawkish, signaling that it will raise its rates three times in 2017-which could help the dollar ascend. According to New York-based Kathy Lien, managing director of FX Strategy for BK Asset management, there are many factors that could thwart the bullish dollar-including political turmoil and mixed messages from the Fed.

“A strong currency hurts corporate earnings by reducing the value of foreign profits and making US exports less competitive on the global market:, Lien wrote to clients.

Although a burly US dollar has affected other parts of the world, for Vietnamese exporter Nguyen VU Loc, CEO of West Food Company-a canned and frozen vegetable and fruit exporter located in Can Tho city-a stronger USD against the VND has not had a noticeable effect on his business.

Instead, Loc is anticipating a 15% year-over-year increase in is export turnover in 2017, with a stronger dollar translating into higher revenues for his export invoices.

Like Loc, the Vietnam Timber and Forest Products Association (Vifores) vice chairman Nguyen Ton Quyen has also welcomed the stronger dollar, as it will help thousands of timber businesses reduce their borrowing costs. “Exporters can earn an extra US$4-US$5 per square metre of wood, thanks to the higher forex rate. Should the appreciation proceed, Vietnam’s export turnover of wood products will soar”, he said.

Quyen, however, noted that the dollar’s recent increase has had only a minor impact on the year-end value of exported wood products. The total revenues are expected to reach US$7.3 billion for the entire year, a rise of only 1% year-over-year.

Nguyen Ngoc Thuyen, director of Nhat Anh Trading Company in Hanoi, a company that specialises in the exportation of garments and textiles, said each dollar from his firm’s exports will add an additional VND300 to its earnings. “That means a US$1 million export contract will bring us an additional VND300 million (nearly US$14,300).”

Meanwhile, many importers like pharmaceutical firm Lynh Farma in Ho Chi Minh City have begun to feel the pinch from the strengthened dollar. A source from this firm said that she felt unhappy over such a stronger dollar.

‘We will lose a lot of money from the exchange rate adjustment. Each of our imported packages is worth about VND10 billion (US$476,200) with the old exchange rate. However, we will have to pay an additional thousands of dollars given the new exchange rate”, she said.

“A 1% fall in the dong will cause big losses to other pharmaceutical firms which have to import 80% of drugs into Vietnam”, the source added.

Experts have also expressed concerns about the further devaluation of the dong.

Head of trading at HDBC (Vietnam) Ngo Dang Khoa noted that as Fed rates rise, the cost of borrowing will increase and liquid capital will likely move from developing markets to the US, in a bid to capitalise on higher interest rates.

According to Khoa, unknown knock-on effects of the strengthened dollar and the US election are furthering the strain on emerging market currencies.

“The VND is not an exception when it’s under stress over the decline of regional currencies”, he said. “In addition, the balance of trade has gone back to deficit status in the past two months, with a total trade deficit adding up to roughly US$700 million. This will further strain the USD/VND ratio”.

Lien of BK Asset Management listed various reasons “why the dollar is headache” and why it would be dangerous to expect an uninhibited rally in the dollar next year”. These factors include less exports, more imports, a wider trade deficit on the US side, and more pressure on emerging market nations with dollar-denominated debts.

VIR