(Bloomberg) -- The South Korean won, emerging Asia’s worst-performing currency this year, looks poised for a rebound as both local and external factors turn in its favor.
Natixis SA and Kookmin Bank expect the currency to strengthen at least 2% by the end of the year with the Federal Reserve’s anticipated rate cuts a key driver. Strong exports and the nation’s anticipated entry into a global index are also expected to add support, with Kookmin Bank projecting the won to reach as high as 1,350 per dollar.
“Early August will likely be the toughest period for the won” due to uncertainties over the US elections and Fed policy, said Moon Junghiu, an economist at Kookmin. The currency is expected to move higher after that as exports growth keeps pace and investor get more clarity on the US presidential vote, Moon said.
The won has fallen nearly 7% this year amid economic woes in China, Korea’s biggest trading partner. It closed at 1,383.95 last week. A comeback now looks in sight as the Fed’s pivot nears, which will help revive sentiment toward EM assets. The nation has lured $2.5 billion in bonds and stocks this month ahead of a potential inclusion into the FTSE Russell’s World Government Bond Index in September.
Trade data is also helping turn the sentiment as exports continue to grow at a solid clip, helped by shipments of chips. A global boom for artificial intelligence is a boost for Korea, home to two of the world’s biggest semiconductor manufacturers, Samsung Electronics Co. and SK Hynix Inc.
Dollar-won continues to consolidate within a triangle formation, but the risk of it moving lower appears to be growing with initial resistance at this month’s high of 1391.95 still in place. In addition, the currency pair’s bullish moment seems to be waning per its moving average convergence-divergence, a momentum indicator ominously forming a series of lower highs.
To be sure, the won fell in the last two sessions as risk sentiment deteriorated amid a heavy selloff in global tech stocks and an unexpected contraction in Korea’s economy in the second quarter. However, the latest tax proposal from the government, which includes an extension of support for chipmakers and a cut in inheritance levies, can help boost its financial markets and the economy.
Investors will now be monitoring the nation’s trade data Thursday and inflation numbers on Friday to weigh the Bank of Korea’s rate cut prospects. The local currency’s weakness so far has kept the central bank cautious about cutting too early.
“Local supply-demand conditions look favorable for the won in aspects of the nation’s current-account and stock market trends,” Moon Dawoon, an analyst at Korea Investment & Securities, wrote in a note. “Barring some Korea-unique risks, further won weakness seems excessive.”
Here are the key Asian economic data due this week:
- Monday, July 29: Korea department store sales, Korea retail sales
- Tuesday, July 30: Japan jobless rate
- Wednesday, July 31: Singapore unemployment rate, Bank of Japan rate decision, Korea industrial production, China manufacturing PMI, Thailand current account balance, Thailand trade data, Taiwan GDP, Hong Kong GDP, Japan retail sales, Japan industrial production
- Thursday, Aug. 1: Korea trade data, Caixin China PMI manufacturing, S&P Global Indonesia PMI manufacturing, Indonesia CPI, HSBC India PMI manufacturing, S&P Global Malaysia PMI manufacturing, S&P Global Philippines PMI manufacturing, S&P Global Taiwan PMI manufacturing, Hong Kong retail sales value, Jibun Bank Japan PMI manufacturing
- Friday, Aug. 2: Korea CPI, Thailand gross international reserves, Singapore purchasing managers index, Japan monetary base
--With assistance from David Finnerty.
©2024 Bloomberg L.P.
