Vietnam devalued the dong on Wednesday for the third time this year as authorities moved to bolster a stalled export sector facing fresh challenges from a devaluation of the Chinese yuan.

The State Bank of Vietnam (SBV) said the intervention was also in anticipation of the US Federal Reserve raising rates. It widened the dollar/dong trading band for the second time in a week, underscoring concerns a weaker yuan could further inflame bloated trade deficit.

Vietnam’s economy is closely tied to its communist neighbour, with three quarters of bilateral trade worth $60 billion being imports from China.

Global markets were alarmed when China devalued the yuan by nearly 2 per cent on August 11, with analysts fearing a further weakening over coming months and heightened worries of a global currency war.

Vietnam lowered the official mid-point rate by 0.99 per cent to 21,890 dong per dollar and widened the trading band for the second time in six days, to 3 per cent from 2 per cent.

The SBV allowed 1-per cent currency depreciations in January and May.

ANZ analysts said the devaluation was more aggressive than expected, while HSBC Vietnam welcomed the quick response.

“The move of the central bank is fast and almost unprecedented in Vietnam,” HSBC Vietnam chairman Pham Hong Hai said in a statement. “The bank is ready to handle market challenges.”

The dong, among Asia’s most resilient currencies, dropped to 22,380/22,400 per dollar on the interbank market on Wednesday, off 1.3 per cent from the previous day and down 4.5 per cent so far this year.

The weaker yuan has sparked concern of more Chinese goods flooding Vietnam’s market. Trade with China was in deficit of $19.33 billion in the first seven months of 2015, versus a $14.88 billion deficit a year ago.

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