KRW likely to advance further amid robust equity inflows until May FOMC meeting, says Scotiabank

The KRW is expected to advance further amid robust equity inflows including IPO-related flows until May Federal Open Market Committee (FOMC) meeting set for May 2-3 as risk appetite may last for a while.

Further, the KRW will remain susceptible to the geopolitical situation on the Peninsula and other external factors including Fed rate hikes and Trump’s tax reform plan, while benefiting from potential equity inflows amid accommodative external liquidity. If North Korea conducts more test-firings of missiles or a sixth nuclear test, it will intensify geopolitical tensions, dampen market mood and undermine the KRW afterwards.

The odds of a June rate hike by the Fed climbed about 20 percentage points to 69.7 percent as of Tuesday, from 50.2 percent last Friday. The Federal Reserve may start to talk up the odds further after current blackout period and till June FOMC meeting, if the United States Bureau of Labor Statistics (BLS) delivers strong April non-farm payroll data on May 5. Rising UST yields are expected to send the USD modestly stronger against the EM Asian currencies including the KRW after May FOMC meeting.

Meanwhile, foreign investors continue to pour funds into Korean equity markets in line with declining sovereign CDS premium, adding to their positions in local shares by total USD 1.14 billion in the past four sessions. The Kospi share index extended its gains on Wednesday morning and has broken above the 2,200 resistance level.