Goldman: Stay Bullish With An August BoK Hike Now In View

Goldman Sachs notes that "after underperforming in the first week of July, the Won has rallied back and outperformed all NJA currencies over the past week. Domestically, much of this has reflected a hawkish pivot from the BoK. Heading into the meeting, expectations had been scaled back given an increase in the number of new daily Covid-19 cases in Korea to around 1500 per day (vs. < 1000 per day in June). Despite this, as the BoK kept rates on hold, there was a dissenting vote calling for a hike, the forward section of the statement opened the door for a rate hike as early as August, and the BoK governor reiterated during the press conference that current macro conditions would warrant the start of gradual monetary policy normalization sooner rather than later. Overall, the hawkish tone of the meeting, combined with the release of a detailed vaccine supply plan (35mn from now through to end-August), meaningfully raises the odds of an earlier liftoff. While this is a close call, our Korean economists have brought forward their timing for liftoff to August (from October previously), followed by a second rate hike in November (from February 2022 previously). Given these factors, together with a strong export outlook, and a recent upward revision to our current account surplus forecast, we maintain our bullish outlook on KRW."