Amid caution over market intervention by foreign exchange authorities, the won closed at 1,440.3 per U.S. dollar on the 26th. This is the lowest in about a month and a half. During intraday trading, it even fell to the 1,429 won level after news broke that the National Pension Service had resumed strategic currency hedging.
In the Seoul foreign exchange market that day, the won-dollar rate closed at 1,440.3 won, down 9.5 won from the previous session's (on the 24th) weekly transaction closing price. It is the lowest level since the 4th of last month (1,437.9 won).
The rate opened at 1,449.9 won, rose to 1,454.3 won early in the session, then reversed lower. It widened losses thereafter, dipping below 1,440 won at 11:07 a.m., and fell to as low as 1,429.5 won at 11:35 a.m. It then pared some of the losses and closed in the 1,440 won range.
The rate fell as caution about intervention by the foreign exchange authorities increased. In a message sent to the press corps on the 24th, the authorities said, "You will soon see the government's strong will and policy execution capacity for exchange rate stability." In the aftermath, the rate, which had opened at 1,484.9 won at the time, ended weekly transaction at 1,449.8 won, down 33.8 won from the previous day, and the caution continued on the 26th, pushing the rate down further.
News that the National Pension Service had resumed currency hedging also played a role. According to the foreign exchange authorities and others, the National Pension Service undertook strategic currency hedging that day. If the won-dollar rate rises more than expected, the National Pension Service sells dollar forward contracts on up to 10% of overseas assets (a contract to sell dollars at a pre-set rate). This increases the dollar supply in the market, exerting downward pressure on the rate.
Heavy buying of domestic stocks by foreign investors also helped push the rate lower. In the Korea Exchange's main board (KOSPI) that day, foreigners posted a net purchase of 1.7622 trillion won. In the aftermath, the KOSPI finished at 4,129.68, up 21.06 points (0.51%) from the previous session. Foreign buying increases demand to convert dollars into won, acting as a factor driving the rate down.
Jo Yong-gu, a researcher at Shinyoung Securities, said, "If the government's tax support and verbal intervention by the foreign exchange authorities curbed dollar demand, the National Pension Service's resumption of currency hedging increased dollar supply and had a tangible impact on supply and demand," adding, "If this trend continues through the end of the year, the rate could fall to the low 1,400 won range."