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Fundamentals May See Market Fade USD/KRW Upticks

KRW

Still, for USD/KRW the market may be happy to fade upticks in the pair. This morning's first 20-days August trade data pointed to a resilient export growth backdrop. The chart below highlights that there remains a reasonable wedge between rolling KRW/USD y/y changes and the improved export backdrop (with the latest print +18.5%y/y for exports, the outcome for the first 20days of the month, used in the chart). If USD/KRW holds at current levels into end August, some of this wedge will be closed though.

  • The BoK is likely to hold rates tomorrow, another marginal won positive.
  • Broader trends are likely to be dictated by how dovish the Fed is through the second half of this year relative to current market pricing.
  • A soft landing scenario should also be supportive of global equity trends, which should see greater offshore inflows return to South Korean stocks. A won positive all else equal.
  • Structural domestic outflows are a won headwind, but such outflows may moderate with a Fed easing cycle.

Fig 1: Won Gains Still Lagging Improved Exports


Source: MNI - Market News/Bloomberg

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