USD/KRW likely to advance in the coming weeks, could trade in range of 1,120-1,180: Scotiabank

The KRW has been weakening since early June despite rising Kospi share index. The divergence between the Kospi index and the KRW could be attributed to external uncertainty, geopolitical situation and domestic factors.

Bear-steepening UST yield curves and rising foreign reserves of the nation have weighed on the KRW’s strength in the past months. Korea’s Finance Minister Kim Dong-yeon said Friday that there are also risks such as the Fed tightening its policy, while the economy may grow further if the Parliament approves the extra budget.

US President Donald Trump said at the summit meeting with President Moon Jae-in in Washington that South Korea and the US are already in talks to renegotiate the free trade agreement (FTA) that went into effect in the year of 2012. In the third quarter, a growing concern over global liquidity conditions is likely to weigh on EM Asian currencies such as the KRW that has rallied substantially this year amid large portfolio inflows.

The ECB and the Fed will hold the next monetary policy meeting on July 20 and July 25-26 respectively, which could provide us with more clues to the ECB’s QE tapering and the Fed’s balance sheet rundown.

"We maintain our long CNH/KRW cross position, while expecting USD/KRW to advance in the weeks ahead. In addition, the pair could trade in a range of 1,120 to 1,180 in the September quarter," Scotiabank commented in its latest research report.

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