[ANALYST REPORT] USD-KRW to fall on easing financial market uncertainty

■ China’s export data raises concerns over economic downturn; USD-KRW surges on risk aversion

The USD-KRW rate opened October 13 at KRW1,126.0, up KRW2.4 from the previous close, reflecting the continued strength of the USD after the U.S. Fed’s FOMC minutes reaffirmed its willingness to raise the benchmark rate within this year. The Bank of Korea’s Monetary Policy Committee kept its benchmark rate changed in the morning. The impact on the market was marginal. The USD-KRW rate soared as investor sentiment weakened following the release of China’s sluggish September import/export indicators. The USD-KRW rate accelerated its rise and closed the day at KRW1,135.9, up KRW12.3 from the previous close.

■ Despite strong U.S. weekly employment data, USD loses on concerns over Chinese economy; USD-JPY drops to mid-JPY103 range

The U.S. unemployment benefit claims in the first week of October stood at 246,000, unchanged WoW, indicating job market conditions are solid. However, China’s of sluggish September import/export indicators have raised concerns over its economy. The possibility of a federal funds rate hike this year, implied in futures rates, fell from yesterday’s figure to 65.9%. The upward pressure on the USD weakened slightly. The USD-JPY rate fell to the mid-JPY103 level and the EUR-USD rate climbed to the low-USD1.11 level. In the offshore market, the USD-CNY rate rose above CNY6.74 during trading hours, but fell to the mid-CNY6.73 range as the rebound in oil prices eased risk aversion.

■ Financial market uncertainty to ease; USD-KRW to move in high-KRW1,120 range

The USD-KRW rate is expected to open at KRW1,129, down from the previous close, based on NDF exchange rates. It surged yesterday on China’s currency devaluation after the release of weak economic data. The pace of CNY devaluation has slowed overnight. The USD-KRW rate is expected to face downward pressure amid slowing USD appreciation. U.S. consumer data will be released tonight, including September retail sales and October University of Michigan Consumer Sentiment Index. Caution against the Fed’s rate hike may rise again if the data turns out to be strong. We can expect an inflow of bargain hunters in the lower end of the USD-KRW range. The rate is likely to fluctuate in the high-KRW1,120 range.

Source : Shinhan Investment Corp. / By  Keon-hyeong Ha Economist (keonhyeong.ha@shinhan.com)