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Korean Won to Struggle in Any Case, Says Nomura

For a portion of 2017, the South Korean won had been Asia’s best performing currency. Over the past month, it has, however, deviated from what has been a stable path for Asian currencies generally.

Between July 27th and Friday’s close, the Japanese yen, Chinese yuan and Thai baht rose against the dollar by 1.8%, 1.2% and 0.5% respectively, and most other Asian currencies remained little changed, but the Korean won fell by 2.6% – a fall which places the won as Asia’s worst performer during this period.

As is well known, the won has suffered in recent weeks in light of the tense geopolitical situation involving North Korea, but signs were there in late July that the won would struggle to appreciate further when USD/KRW failed for the third time this year to breach the critical technical level of 1110. There are only so many times you can knock on the door before you have to turn around and walk away, and July’s failure at 1110 prompted a sharp two-week rally to 1148. On Friday, following a slight recovery in the won, the dollar was buying 1141.

And while entering the final week of July the won was still Asia’s best performer, it should be said that much of the won’s year-to-date gain at that time had come in the first quarter (the won posted an 8.2% gain against USD in the three months ending March-31). Since late March, the won has broadly traded sideways or weakened, although it does retain a respectable year-to-date gain of 5.8%.


Nomura: Won to Remain Heavy Regardless of North Korea

In the rather ugly case of a military conflict between South Korea (or the US) and North Korea, the won would plunge more than 10% according to analysts at Japanese banking giant Nomura.

Alternatively, to keep things as they are, under a cloud of constant tension but without military engagement, would likely slow South Korean GDP growth to something like 2.3% next year, from expected levels around 2.7% this year, and hit the tourism and construction sectors hard. Nomura cited the near-70% fall in Chinese tourists in South Korea in August this year compared with August 2016 and referenced the existing struggle by construction firms in light of government measures to restrain the housing market. The won would remain heavy under these conditions.

Even in Nomura’s best-case scenario, which they believe to be an end to military threats and the introduction of meaningful negotiations between the involved parties, South Korea’s currency won’t rally much higher than it is now. In this scenario, according to Nomura the won would trade at 1140 against the dollar by the end of 2018, at virtually the same level it is now.

KRW/USD 3 Month Chart

“[In a best-case scenario] we believe foreign-exchange and fiscal policy will be the same as they are now, because South Korean policymakers will wait and see how the actual negotiations conclude – which would take a long time,” a Nomura analyst said.

For those travelling to South Korea and in need of local currency or sending KRW payments, you’ll save big on exchange rates by using our online comparison calculators for KRW travel cash and KRW foreign currency transfers.

Additionally, if your business is negatively impacted by movements in KRW exchange rates, consider reading BestExchangeRates’ guides to managing FX risk.

Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.

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