RBC Recommend Short KRW/IDR Trade

Monday saw RBC note that “KRW/IDR has broken clearly below IDR11.30 support, which was also the 2020 low. The won has been the worst performer in the Asian FX complex year-to-date, and its underperformance is likely to persist. South Korea’s trade deficit is worsening as energy prices stay elevated, it is highly exposed to China’s economy, and the poor outlook of the global semiconductor sector all argue for further weakness in the won. Indonesia will not be immune to the global growth slowdown either, but its economy is less vulnerable to China’s growth slowdown and it is primarily domestic-driven. On top of this is that Bank Indonesia is likely to commence its rates liftoff this quarter, possibly as early as this week.”

• As such, they recommended a short KRW/IDR trade legged via NDFs i.e. buying USD/KRW 1-month NDF at KRW1,345.10 vs. selling USD/IDR 1-month NDF at IDR14,932, targeting KRW/IDR spot at IDR10.50, with a stop set at a daily close above IDR11.29 in spot.