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Rhetoric Around Won Weakness Rising

KRW

April's 3.6% surge in USD/KRW was the largest monthly rise since late 2016 for the pair. This puts us within striking distance of early 2020 highs close to KRW1,300.

  • Still, the market may not expect further sharp won weakness in the near term.
  • Rhetoric from the finance ministry is rising, with the ministry stating it was ready to stabilize currency sentiment if needed. The weaker won is also getting more domestic press (see this Korean Times article).
  • Dividend outflows to offshore of just under $4bn in April will not be as large in May.
  • USD/KRW is also quite elevated relative to its own 200-DMA, see the chart below. Post the 2008 financial crisis, this deviation has tended to peak ahead of +10%. We currently sit close to 7% on this metric.


There are medium term headwinds to be mindful of though, which may keep USD/KRW dips still relatively shallow.

  • Weaker global growth, particularly from China, suggests export growth can slow further.
  • Correlations with USD/JPY and USD/CNH are running at +90% for the past month.
  • JPM highlighted continued domestic capital outflow pressures as well. NPS need to buy +$25bn in foreign assets to achieve their 55% foreign allocation by 2025. Retail investors are also expected to continue to invest offshore.
  • Such outflows come when the terms of trade remain a headwind.

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