South Korea’s won traded near a 15-month high and stocks extended gains after North Korea launched a rocket in defiance of international sanctions. Government bonds were little changed.
The North America Aerospace Defense Command said in a statement that it detected the launch at 9:49 a.m. local time. The won strengthened in early trading after a report showed the nation’s unemployment rate remained at a four-year low and on speculation the Federal Reserve will step up monetary easing that may spur demand for emerging-market assets.
South Korea’s currency closed 0.2 percent stronger at 1,074.93 per dollar in Seoul, according to data compiled by Bloomberg. It touched 1,073.64, the strongest level since September 2011, before temporarily paring gains following the North’s rocket launch. The Kospi index of shares rose 0.6 percent, closing at the highest level since Oct. 9.
“North Korea had warned it would launch a rocket and so the firing was expected by investors, which explains the relatively muted reaction in financial markets,” said Yun Se Min, a Seoul-based currency dealer at Busan Bank.
The communist nation’s official Korean Central News Agency confirmed the launch of the rocket that put a satellite into space, calling it a success in the report. Japan estimated that debris fell into the sea away from the Korean peninsula and east of the Philippines, whose Department of Foreign Affairs condemned the firing in a statement.
Moody’s Investors Service said the rocket launch has no effect on South Korea’s rating while Standard & Poor’s said it won’t raise geopolitical risks in the Korean peninsula on a prolonged basis. South Korea’s finance ministry, Bank of Korea, and the financial regular will hold a joint meeting tomorrow at 7:30 a.m. local time on North Korea.
“South Koreans are getting better and better at managing this kind of unexpected risk from North Korea,” said Lee Sang Jae, a Seoul-based economist at Hyundai Economic Research Institute. “Government reactions are getting faster because there is a learning impact.”
The won strengthened 0.5 percent, while the Kospi added 1.1 percent on April 13 when a long-range rocket launched by North Korea failed. The authorities can undertake “smoothing operations” to curb volatile currency movements, Ryoo Sang Dai, director-general of the international department at Bank of Korea, said yesterday, the Korea Economic Daily reported. The Dollar Index halted a two-day decline before the outcome of the Fed’s policy meeting.
The Fed will announce today $45 billion in monthly Treasury buying that will push its balance sheet to almost $4 trillion, according to the median estimate in a Bloomberg News survey.
“Optimism prevails about the outcome of the Fed meeting, and with the dollar staying weak there is risk appetite in the market,” said Jude Noh, a Seoul-based chief currency dealer at Suhyup Bank. “While there is speculation that Korean monetary authorities are carrying out smoothing operations almost every day, it is to slow the pace of appreciation, not reverse the trend.”
South Korea’s unemployment rate was unchanged at 3 percent in November, matching the October level that was the lowest since February 2008, official figures showed today. The Bank of Korea will hold its benchmark interest rate at 2.75 percent tomorrow, according to 14 of 15 economists surveyed by Bloomberg. One forecast a cut to 2.5 percent.
The yield on South Korea’s 2.75 percent bonds due September 2017 was little changed at 2.96 percent, Korea Exchange prices show. The one-year interest-rate swap was 2.785 percent, down from 2.79 percent yesterday.