Analysts at MUFG Bank, forecast USD/KRW at 1205.0 over the third quarter, 1210.0 by the fourth and around 1195.0 by the first quarter 2020. They see a rate cut from the Bank of Korea in October.
Key Quotes:
“Trump trade policy and the reactions to it drove global currencies in August including, notably, the won. Onshore traders maintain a keen eye on CNH so Trump trade gyrations plus RMB > 7 delivered a double whammy to the local market. However, since we expect CNY/CNH to breathe a sigh of relief in the next month, there is room for KRW to settle, too.”
“Perhaps the biggest mistake we made last month was in underestimating the time it shall require before the Japan-Korea reparations/trade spat will resolve. We now don’t expect resolution till 1Q20 as we approach next year’s 2020 Korean legislative elections.”
“A resolution could still take 10-15 big figures off of USD/KRW. Otherwise we still find the won’s worst performance in Asia YTD puzzling.”
“Why the Trump Trade War should hit Korea especially hard (eg, Korea’s real effective exchange rate has weakened far more than Taiwan’s or China’s) is mysterious – slowdown in export value growth since Trump is nearly identical across China, Korea and Taiwan. Our only appeal, as we had discussed early this year, is to general EM risk off, where Korea appears more exposed than its Northeast Asian neighbours.”
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