Korea Investment & Securities Co. said the won-dollar rate eased on views that it had peaked against the U.S. dollar, and projected the lower bound will gradually decline in the first half.
Moon Da-un, a researcher at Korea Investment & Securities Co., said, "Even as the yen's weakness has persisted recently, the won posted a strong rebound," and noted, "This means the recent drop in the exchange rate stemmed more from a reduction in domestic won-weakening pressure than from external factors."
Since the fourth quarter of last year, concerns over a decline in the won's value spread, leading to a heavy tilt toward dollar buying in terms of supply and demand. But with strong verbal intervention by the government at the start of the year and effective foreign-exchange supply measures, the excessive weakening pressure on the won has been easing.
As recognition that the exchange rate has peaked strengthens, projections are emerging that the rate could fall further. In turn, exporters who had delayed converting won are resuming dollar sales, easing domestic supply-demand conditions.
Moon said, "Resident flows are having a bigger impact on recent exchange-rate moves than foreigners," adding, "In short, how much residents send funds abroad (dollar demand) and how much they bring into the country (dollar supply) is determining the short-term direction of the rate."
As domestic stocks have rallied at the start of the year, a closer look by investor type shows that despite foreigners' net selling, strong buying has continued led by institutions and securities. Moon said, "Accordingly, residents' net investment in overseas stocks is also shrinking," and added, "In addition, the National Pension Service's reduced share of overseas investments and the temporary deferral of rebalancing are feeding into weaker dollar demand, supporting a lower exchange rate."
Korea Investment & Securities Co. projected that, in the near term, the exchange rate's decline will continue on improved sentiment and supply-demand for the won due to the government's foreign-exchange supply measures. Moon said, "If the rate breaks below the short-term floor of 1,420 won, it will attempt to move below 1,400 won."
He added, "Rebound pressure from dip-buying of dollars and downside rigidity could rise at the same time," and said, "Given the base where the won had been excessively depreciated, it is necessary to leave the lower bound open to around 1,380 won."