The won was the worst affected Asian currency amid last week’s bond market turmoil and some analysts expect the weakness to continue, at least over the coming weeks.
(Bloomberg) — The won was the worst affected Asian currency amid last week’s bond market turmoil and some analysts expect the weakness to continue, at least over the coming weeks.
The dollar-won pair is on the cusp of breaking up through closely-watched technical levels which would open up the door for a further depreciation in the Korean currency. The won weakened about 2.5% last week, its worst since February, and potential fund outflows and general risk aversion are a near-term threat, according to analysts.
“Uncertainties, including the release of US inflation data later this week, and Jerome Powell’s comments at the Jackson Hole meeting due end-August,” add to risk aversion and are likely to stymie the won, said Park Sooyeon, an economist at Meritz Securities.
At least part of the decline could happen quickly: Meritz sees the won dropping to as low as 1,315 per dollar in the next week or two as risk appetite withers. The currency traded around the 1,306 level Monday.
Faster economic growth in the US relative to Korea means funds will naturally flow out, bringing the won as low as 1,350 per dollar, according to Woori Bank. And the country’s sluggish exports due to weak China demand remain a negative factor, according to economist Min Gyeong-won.
“The semiconductor industry remains the biggest part of Korea’s economy, but it isn’t likely to improve soon with China’s manufacturing sector still going through a slump,” Min said.
Traders will keep a close eye on whether dollar-won makes a significant break through its 200-day moving average and the pair’s downtrend in place since October. A breach of those levels, which have acted as support for the Korean currency, would be a bearish won signal for chart watchers.
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