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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
KRW
The won continued to display a strong beta with respect to broader DXY moves during the overnight session. Still, the currency underperformed other higher beta FX in the G10 space and did not receive much benefit from the modest rise in US equities. The 1 month NDF traded around md July cyclical highs of 1329, but we are a touch lower now, at just under 1327. Onshore USD/KRW has opened up higher, +0.50% to 1327, fresh cyclical highs, versus yesterday's closing level of 1320.55.
- Headlines came out earlier from the Finance Ministry that South Korea would pre-emptively manage risks around rising short term external through macroprudential policies. It would also encourage state owned enterprises to issue long-term FX bonds and look at rules for banks' FX forward positions.
- This comes after data for Q2 showed a rise in external debt to fresh record high ($662bn). Short term external debt rose to $183.bn, back close to 2008 highs. As a proportion of South Korea's FX reserves this measure is continuing to trend higher, see the chart below.
- We are well below 2008 highs on this metric, but trending in the wrong direction from an FX reserve coverage standpoint. This is likely to be a continued focused point, particularly with South Korea's external trade position still sitting comfortably in deficit.
- Other focus points will be further weakness in onshore equities. The Kospi is off a further 0.50% in the first part of trading today. Note offshore investors continue to be a buyer of onshore equities though, a further +$222.8mn in net inflows yesterday.
Fig 1: South Korea's Short Term External Debt to FX Reserves Ratio
Source: MNI/Market News/Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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