KRW
Spot USD/KRW is holding in the 1395/96, similar to levels post the initial move higher after the surprise BoK 25bps cut. Dips sub 1391 have been supported, while the topside has been capped just above 1396.
- BoK Governor Rhee stated the FX volatility was discussed during today's meeting. Rhee noted that the central bank will work with the government to manage such risks. He also stated that the central bank is discussing Raising the swap amount with the National Pension Service, which was already reported. He did add though that the swap is likely to increase substantially.
- The central bank is focused on relative won performance and that the US Fed outlook is more likely to shift won sentiment than the BOK. This fits with US-SK yield differentials being more reflective of US moves than SK ones, a trait similar to other EM Asia economies.
- This differential has lined up with \spot USD/KRW trends this past year, see the chart below. Spot USD/KRW is inverted on the chart against the SK-US 2yr government bond yield differential.
- Spreads suggests USD/KRW dips should be supported, although we may to see spreads widen beyond -150bps against South Korea to drive the pair meaningfully above 1400, at least based of this relationship.
- The bias for the BoK looks to be easier policy settings, although the timing is uncertain given the split board outlook for the next 3 months.
Fig 1: USD/KRW Spot (inverted) Versus SK-US 2yr Govt Bond Yield Differential
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