The won-dollar exchange rate against the U.S. dollar is moving down this week from the 1,500-won range to the 1,400-won range on a weekly closing basis. The listing of SK hynix American depositary receipts (ADR) is analyzed as one of the main factors.
On the 15th, when dollar cash from the ADR listing began to flow into the Seoul foreign exchange market, the won-dollar rate closed at 1,484.7 won. It fell 8.3 won, or 0.55%, in a day. On the 13th and 14th, before the dollar cash flowed in, the rate still fell as dollar selling took place on expectations of the inflow, closing at 1,503.4 won and 1,493 won, respectively.
◇ "SK hynix ADR listing" first day of dollar inflows, rate falls 8.3 won
Foreign exchange authorities believe SK hynix sold part of the ADR listing offering proceeds ($26.5 billion in total) in the foreign exchange market. If so, the increased dollar supply has the effect of pushing the rate lower.
SK hynix keeps the dollars received from the ADR listing in an account opened at a domestic bank. When dollars are withdrawn from this account and exchanged into won, the authorities can gauge the size. However, an official noted, "We cannot disclose the specific amount."
In the foreign exchange market, there is talk that "SK hynix ADR listing offering proceeds will be released into the market in sequence." At $1 billion a day (about 1.5 trillion won), calculations show the funds could be supplied to the Seoul foreign exchange market over 20 to 30 trading days. One billion dollars is around 10% of the market's average daily spot trading volume ($10 billion to $15 billion). It is assessed as an amount that could have a significant impact on the rate.
◇ "The rate will vary depending on when SK hynix converts dollars into won"
Accordingly, there is a view that the rate could fall to the 1,400-won level. KB Kookmin Bank said in the "Foreign exchange and swap market outlook" on the 14th that "if foreign investors' net stock selling is not large and ADR funds flow in en masse in succession, a firm landing at 1,400 won is also possible," adding, "Starting this week, the rate is expected to attempt a trend reversal lower."
The opposite view is also emerging. Shinhan Bank said in the "July exchange rate outlook" that "if a large amount ($26.5 billion) is put into the Seoul foreign exchange market at once, the market cannot absorb it, so corporations have no reason to rush to convert," adding, "Be mindful that the event (SK hynix ADR listing) could be a factor for won weakness rather than strength in July."
There is also analysis that the rate could vary depending on when SK hynix sells dollars. A foreign exchange market official said, "If dollars are sold in a short period, the rate falls, and if dollars are sold again at the lower price, the loss ultimately grows." An official also said, "SK hynix will not try to take a loss either."