Won Extends Gain as Overseas Investors Buy Stocks, Dollar Falls

  • Dollar index little changed over week as U.S. jobs data looms
  • Rate swaps starting to price in South Korea monetary easing

South Korea’s won rose the most in a week as foreigners snapped up the nation’s equities and the dollar fell after traders increased bets the Federal Reserve will keep interest rates unchanged this month.

Investors from abroad bought a net $412.9 million of Kospi shares in the past two days, the biggest such inflows since the April 14-15. Better-than-expected data this week on China manufacturing and Australia’s output boosted demand for higher-yielding assets. Korea’s one-year interest-rate swap is trading near the biggest discount to the central bank’s policy rate since just before it last lowered borrowing costs in June 2015.

“The numbers from Australia were taken as a positive signal for the regional economy,” said Kim Hyung Rae, an analyst at Daewoo Securities in Seoul.

The currency strengthened 0.5 percent to 1,186.57 per dollar as of the 3 p.m. close in Seoul, according to prices from locals banks compiled by Bloomberg. That was the biggest gain since May 25. It earlier weakened as much as 0.2 percent.

Other Asian currencies also rose, with the Indian rupee climbing 0.3 percent and the Thai baht advancing 0.2 percent.

Buying Shares

“Foreign investors were picking up Korean shares since yesterday, it seems like portfolio adjustment is on the way,” said Jude Noh, a chief currency trader at Suhyup Bank. “But buying is not very strong either as it is not a good time to make big moves ahead of key U.S. figures including the job data.”

Morgan Stanley maintained its forecast for the won to weaken after trade and inflation data backed the case for a rate cut.

The bank sees the currency declining to 1,250 per dollar by year-end, a loss of 5 percent based on the current spot rate. A 17-month contraction in exports and the smallest current-account surplus since 2014 have heightened the odds for monetary easing.

The one-year swap was little changed at 1.43 percent after dropping five basis points on Wednesday after the release of trade data for May. That’s seven basis points below the central bank’s record-low benchmark rate. The difference was minus eight basis points the day before Bank of Korea cut rates on June 11 last year.

The three-year bond yield was little changed at 1.45 percent, and the 10-year held at 1.76 percent, exchange prices show.

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