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China Repo Rates Fall on Tuesday


RBC: Receive 1Y1Y Vs. U.S.

KOREAN WON: USDKRW has extended recent gains with the pair up another 0.2% today
at 1126.5. Down trendline resistance from the 2016 highs comes in around 1135,
above which would suggest further upside. While USDJPY held up the face of
global equity weakness, KRWJPY is under pressure, testing support at its 21dma. 
- Today's USDKRW upside has been accompanied by a rise in implied volatility
after a period of divergence, leaving the won open to further upside. Korea's 10
year CDS has also seen some renewed upside after recent declines as tightness in
US credit markets resumed yesterday.
- In terms of real yield spreads, falling US real rates have helped spreads move
back in Korea's favour over recent days, reducing some of the fundamental
pressure on the won. However, USDKRW remains below fair value based on the
historical relationship with real yield spreads suggesting medium term upside
- Foreign reserves rose to US$405.5bn from US$403.7. Meanwhile Yonhap reported
yesterday that South Korea's finance minister expects weak employment data in
January due mainly to a high base effect amid an economic slowdown.