Korean Won Climbs as Rebound in Oil Spurs Rally in Global Stocks

  • U.S. new homes data bolster growth outlook and Fed hike bets
  • South Korea short-term debt falls to lowest since 2006

South Korea’s won rose the most in a month as a rebound in oil spurred a rally in global stocks and on speculation investors are getting used to the fact that the U.S. will raise interest rates as early as June.

The currency climbed along with other Asian exchange rates and the nation’s
Kospi index of shares advanced by the most in more than a month. Brent crude halted a four-day losing streak overnight and was up more than 1 percent on Wednesday, headed toward $50 a barrel. A report showed South Korea’s short-term external debt dropped to the lowest since 2006 in the first quarter.

A surge in U.S. new homes supported the case for the Federal Reserve to
increase rates amid growing rhetoric from officials over an imminent hike.
That’s also boosted optimism strength in the world’s biggest economy will shore up demand for South Korean exports, which have contracted for 16 straight months. Following a string of economic data from the U.S., the market is more convinced that there will be a rate rise this year, said Ha Keon Hyung, an economist at Shinhan Investment Corp. in Seoul.

“We are seeing a rebound across financial markets in Asia, and the won is holding firm riding on the generally positive mood,” said Chung Sung Yoon, an analyst at Seoul-based Hyundai Futures Corp.

The won appreciated 0.9 percent to 1,182.68 per dollar as of the 3 p.m. close in Seoul, the biggest gain since April 28, according to prices from local banks compiled by Bloomberg. It fell 0.8 percent on Tuesday, its steepest loss in two weeks. The Kospi climbed 1.2 percent.

Good Sign

“Investors are now taking the Fed’s tightening stance as a sign of confidence about the U.S. economy, which is certainly good news for the global economy overall including Korea’s,” said Seo Jeong Hun, an economist at KEB Hana Bank in Seoul. “We are also sensing that exporters are moving quickly to sell their dollars near 1,200, as they view the level as a near-term peak.”

The country’s short-term debt dropped to $102.8 billion in the first quarter from $107.1 billion in the previous three months, the Bank of Korea reported on Wednesday.

The state-run think tank Korea Development Institute on Tuesday cut its growth projection for 2016 to 2.6 percent, from 3 percent. The revision comes after the central bank lowered its own forecast to 2.8 percent in April. The institute also said monetary policy should be more accommodative to help inflation reach the BOK’s target. Policy makers kept the key rate at a record-low 1.5 percent this month.

South Korea’s government bonds fell. The 10-year yield rose one basis point to 1.78 percent, and the three-year yield increased one basis point to 1.46 percent, Korea exchange prices show.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE