Korean Won Gains on Exporter Demand, Stock Inflows; Bonds Rise

South Korea’s won rose to a one-week high on speculation exporters were repatriating income to pay month-end bills and as overseas investors increased holdings of the nation’s equities.

The Kospi index recorded its highest close of the year and the MSCI Asia Pacific Index was set for its best level since 2008, signaling an easing of tensions sparked by the downing of a Malaysian passenger jet in Ukraine. Gross domestic product probably expanded 0.7 percent in the second quarter from the previous three months, the least since the first quarter of 2013, according to the median estimate of economists surveyed by Bloomberg before figures due July 24.

“Local exporters were selling dollars, and demand for the greenback slowed as the risk-off sentiment following the shooting down of the Malaysian jet eased,” said Kim Mijung, a Seoul-based currency trader for Suhyup Bank.

The won gained 0.2 percent to close at 1,024.55 per dollar in Seoul, data compiled by Bloomberg show. The currency touched 1,023.53 earlier, the strongest since July 15. Overseas investors bought $161 million more Korean shares than they sold today, boosting this month’s net purchases to $2.27 billion, exchange data show.

One-month implied volatility in the won, a gauge of expected swings in the exchange rate used to price options, fell 23 basis points to 5.66 percent.

Expansionary Policy

Finance Minister Choi Kyung Hwan said today that fiscal and financial policies will be “aggressively” expansionary to revive growth. President Park Geun Hye said the government will release its revised economic policy outlook on July 24. Choi said last week the government’s 3.9 percent growth forecast for this year needs to be lowered by more than 0.2 percentage point.

The yield on government bonds due June 2017 declined one basis point to 2.51 percent in Seoul, exchange data show. That matches a July 17 close that was the lowest for a benchmark three-year note since May 2013. The yield on notes due March 2024 was little changed at 2.99 percent.

“Choi seems to think South Korea’s economy is facing a crisis,” said Kim Young Jung, a Seoul-based fixed-income analyst for Woori Futures Co. “There isn’t much room for South Korea’s yields to fall. The GDP figures and government policies announced later this week will be important to gauge the Bank of Korea’s actions.”

The central bank held its benchmark rate unchanged at 2.5 percent for a 14th month on July 10 and policy makers next meet on Aug. 14.

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