The South Korean won was Asia’s worst performer over the past six months, and technical indicators suggest the misery is not yet over.
The won dropped to a 17-month low last week, breaching a key support level. Other indicators, including the moving average convergence-divergence, suggest that the tech-dependent currency could slip further against the US dollar.
The Bank of Korea (BOK) could give traders more reason to sell the won on Friday if it disappoints the likes of Goldman Sachs Group Inc and Citigroup Inc, who are calling for a third rate increase sooner than later.
Photo: EPA-EFE
With the Federal Reserve turning increasingly hawkish, a hike might still not be enough to stem the currency’s decline if the BOK signals a slowdown in policy normalization.
“It appears that won is being impacted by higher US yields as well as foreign equity outflows,” TD Securities head Asia and Europe emerging markets strategist Mitul Kotecha said in Singapore. “Pressure on tech stocks globally is also likely weighing on the currency. An absence of support from local exporters is keeping the door open to won downside.”
A global selloff at the start of the year is weighing on South Korea’s tech-dependent market, which suffered a net outflow of US$21 billion last year.
US Department of the Treasury 10-year yields have surged to their highest since April last year, denting sentiment for emerging-market assets. The US-dollar-won pair rose beyond 1,200.35 last week, its high of last year, to touch 1,203.90.
BOK Governor Lee Ju-yeol has previously played down the need to match the pace of the Fed’s rate hikes, doubling down that domestic factors are more important considerations.
Any dovish rhetoric on Friday might help spur further won weakness, especially if investors react by paring back the 90 basis points of hikes they have priced in for the year.
A majority of economists expect the BOK to raise rates to 1.25 percent in the first quarter, although their views are split on whether the move would come on Friday or at the meeting next month.
The currency might find some respite near the end of the month. Local exporters who have accumulated a sizable amount of dollars might start selling ahead of the Lunar New Year, when companies exchange the greenback into the won to give employees, Woori Bank economist Min Gyeong-won said in Seoul.
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