USD/KRW likely to trade towards 1,200 in coming months, says Scotiabank

In January, the South Korean won appreciated around 4 percent due to strong portfolio inflows. Foreign investors bought a net USD 1.25 billion of Korean shares last month, while adding to their holdings in local bonds by USD 2.12 billion, noted Scotiabank in a research report.

Meanwhile, Donald Trump’s National Trade Council head Peter Navarro accused Germany of profiting unfairly from a “grossly undervalued” EUR, while Trump accused China and Japan of using monetary policy to pursue “devaluation” in the past in order to have a trading advantage over the U.S.

It is likely that similar pressure might be imposed on the South Korean won going forward. The KRW is expected to appreciate at current stage especially if Korea is accused of alleged currency manipulation, while remaining fundamentally bearish on the KRW in the face of Fed rate hikes, stated Societe Generale.

The protectionist and populist stances of Donald Trump are likely to pose great risks to global trade. Earlier last week, Trump signed an order to withdraw from the Trans-Pacific Partnership accord. Meanwhile, the euro area economic growth accelerated to 0.5 percent in the fourth quarter, assisted by improved growth in France and resilient growth in Spain. Moreover, inflation in the currency bloc rose to 1.8 percent in January, the most rapid in almost four years. It might trigger market talks regarding ECB QE tapering, weakening EM Asian currencies including the Korean won in the coming months.

“USD/KRW is likely to trade towards 1,127 along with stronger-than-expected January export growth amid a broadly weakening dollar”, added Societe Generale.

But a stronger currency might be a further drag on the country’s export-driven economy, which is facing rising headwinds in 2017. In the coming months, the USD/KRW is likely to recover and move towards 1,200. Hawkish statements from FOMC might see the Korean won depreciating. Meanwhile, the Bank of Korea is expected to keep its policy rate on hold at 1.25 percent in 2017.