USD/KRW likely to consolidate around 1,160 prior to release of U.S. June NFP report, says Scotiabank

The USD/KRW currency pair is expected to consolidate around 1,160 prior to the release of the United States’ June NFP report. But in the medium term, the pair will likely fall toward 1,140 amid portfolio inflows, with the Trump-Xi Summit yielding a positive outcome, according to the latest research report from Scotiabank.

South Korea's exports decreased 13.5 percent in June from a year earlier amid falling chip prices and the prolonged US-China trade war. The outbound shipments dropped for a seventh month in a row in June, remaining a major drag on the nation’s economic growth.

In addition, Japan on Monday imposed restrictions on exports used by South Korea's chip and smartphone companies, casting a shadow on the latter’s export outlook.

South Korea’s CPI inflation came in at 0.7 percent y/y in June, unchanged from May’s pace. However, the headline print is expected to ease towards zero or even deflationary territory from August to November, providing room for the BoK to lower its benchmark interest rates if necessary.

The BoK will likely follow suit on August 30 if the Fed decides to lower the target range for the federal funds rate by 25 bp to 2.00-2.25 percent at the July 30-31 FOMC meeting that has been fully priced in, the report added.

If the BoK decides to stay on hold in August despite a July Fed rate cut, it is expected to trim its policy rate by 25 bp on October 17 after the Fed ends its balance sheet runoff in September.

The US and China reached a trade ceasefire after a 80-minute meeting on Saturday, holding off on new tariffs and resuming trade consultations. In addition, the US and North Korea on Sunday agreed to revive nuclear talks, which will help improve geopolitical situation on the Peninsula.

"While stronger-than-expected ISM manufacturing PMI for June and its rallying Employment sub-index may indicate America’s job market is on a solid footing, the New Orders sub-index falling to 50.0 could reinforce the odds of a July Fed rate cut, even though investors have scaled down their previous expectations of large Fed rate cuts at the July gathering," Scotiabank further commented in the report.