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[Market Now] Korean won gains fastest among Asian currencies

Analysts forecast won to weaken on U.S. rate rise expectations

The Korean won gained the fastest among Asian currencies last month on the back of the U.S. Federal Reserve’s dovish stance on raising interest rates and slower depreciation of the Chinese yuan, according to data by Yonhap Infomax and Capital Economics.


The Korean strengthened against the U.S. dollar by 8.15 percent in March, the highest gain followed by the Malaysian ringgit’s 7.97 percent appreciation; Singaporean dollar’s 4.32 percent; Taiwanese dollar’s 3.44 percent; Philippine peso’s 3.16 percent; and Indian rupee’s 2.94 percent.

The won-dollar exchange reached 1,143.50 won at the end of March, down from 1,245.30 won a month before.

The Reserve Bank of Australia’s recent 5 percent allocation of its foreign exchange reserves to investing in Korean state bonds spurred demand for the won.

Analysts say the dollar has both seasonally and traditionally shown to weaken against major global currencies -- especially of countries that have a trade surplus with the world’s largest economy -- in April.

“The dollar has seasonally weakened in April and October when the U.S. Treasury Department releases its semiannual report on exchange rate policies,” Kim Yu-kyum, economist at LIG Investment & Securities said in a report.

Citing data of Thompson Reuters and LIG Investment tracking the Dollar Index and the won-dollar exchange rate since 2010, the won has relatively stayed strong in April on criticisms by the U.S. foreign exchange policy report.

However, this time, the impact on the won-dollar exchange is likely to be minimal with the won gaining in “small increments” this month as Korea had intervened to slow down the rapid depreciation of the local currency in the second half of last year.

Analysts forecast that the dollar would eventually gain in value as the U.S. increases its benchmark interest rate later this year on solid recovery in housing, employment and consumption, although the Fed, for now, has maintained its loose monetary policy.

“Expectations for a U.S. rate rise would resurface in the second quarter of this year with the U.S. housing market facing recovery,” Suh Dae-il, an analyst at Daewoo Securities, said in a report, adding his forecast of the won weakening toward 1,260 won in the mid-to-long term.

By Park Hyong-ki (hkp@heraldcorp.com)
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