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Analysts at MUFG Bank expect the USD/KRW pair to trade in the range 1175.0/1235.0 over the next two quarters.  

Key Quotes:

“The won recovered in September as expected but gave up about half its intra-month gains to finish at 1196.1 vs. USD, compared with a USD/KRW London close of 1211.2 in August. We continue to expect BOK to cut on 16 October.”

“Deepening slowdowns in Europe and China, our expectations for the Trade War malaise to linger and further delays in the tech recovery all conspire to brush won forecasts weaker. The relief rally we anticipated came and went, but global uncertainties remain, especially slowdowns in Europe and in China (even should the US remain resilient). Though BOK gives the Trade War primary credit for won weakness, at times of won strength we have noticed it’s not always tied to trade.”

“The China slowdown may be more material (export weakness to China – down 17% in 1H19 – has driven overall export slowdown), with authorities conscious of price competitiveness with China. Since we continue to expect China’s own recovery to be hampered by debt, that won’t help. We retain a consistent scepticism re whether a Real Trade Deal can be forged between the US and China. It seems to us then Trade War malaise can be expected to hang over USD/KRW longer, leading us to, eg, expect a weaker won in 4Q19 despite a Team view of another Fed rate cut.”

“Though we expect a 5G push in 2020, it seems better to further delay a Tech Recovery till 2H20 as a working hypothesis. The Japan-Korea trade dispute becomes more nonsensical unless considered in light of next April’s parliamentary elections. President Moon’s approval ratings have dipped very low but it remains to be seen whether voters will punish his party for a relatively poor economic performance. The GM union boycott points to job vulnerabilities for all autoworkers.”