Won Climbs to 7-Week High on Trade; Bond Yields at Record Low
The won touched a seven-week high, and bond yields fell to a record low, as South Korea posted a trade surplus and the U.S. Federal Reserve’s stimulus program fueled speculation investors will buy more emerging-market assets.
Exports from Asia’s fourth-largest economy rose 0.4 percent from a year earlier in April, exceeding imports for a 15th straight month, government data showed yesterday, while inflation cooled. Manufacturing expanded for a third month, a separate report showed today. The Fed said yesterday it will keep buying $85 billion of bonds each month and stands ready to raise or lower purchases as economic conditions evolve.
“The trade surplus is adding to dollar supply and exporters are selling,” said Jeon Seong Ji, a currency analyst at Samsung Futures Inc. in Seoul. “With the Fed maintaining its bond-purchase program, speculation is rising that increased liquidity in emerging markets will support the won.”
The won gained 0.1 percent from April 30 to 1,100.20 per dollar as of 10:53 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,098.15, the highest level since March 13. Local financial markets were closed for a holiday yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 11 basis points, or 0.11 percentage point, to 7.45 percent today.
South Korea’s Purchasing Managers’ Index compiled by Markit Economics climbed to 52.6 in April from 52 in March. Fifty is the dividing line between expansion and contraction. The increase in the nation’s exports was less than the 2 percent gain forecast by economists in a Bloomberg News survey.
“Export growth was minimal, which is evidence that a weaker yen is having a negative impact on Korean exports,” Jeon said. “That may limit further gains in the won.”
The government said yesterday it will add 11.1 trillion won ($10.1 billion) of financial support this year for companies including small- to medium-sized exporters grappling with a sliding yen. While South Korea’s economy expanded at the fastest pace in two years in the first quarter, weakness in the Japanese currency threatens to undermine shipmnets of electronics, automobiles and steel. The won gained 9.3 percent against the yen this year.
Consumer prices rose 1.2 percent from last year and dropped 0.1 percent in April from March, separate government report showed yesterday. That compares with a forecast for a 1.5 percent increase from a year earlier and a 0.2 percent gain from the previous month in a Bloomberg survey of economists.
Benign inflation data reinforces the view that the Bank of Korea will cut interest rates by 25 basis points in May or June, Goldman Sachs Group Inc.’s Seoul-based economist Kwon Goohoon said in a research note yesterday. Central bank policy makers are due to meet on May 9.
The yield on the 2.75 percent government bonds due March 2018 fell six basis points to 2.5 percent, according to prices from Korea Exchange Inc. That’s the lowest for a benchmark five- year bond in Bloomberg data going back to August 2000.
To contact the reporter on this story: Seyoon Kim in Seoul at firstname.lastname@example.org