Top Won Forecasters Predict a Rebound as Goldman Cuts Estimates

South Korea’s won is likely to rebound in the remainder of 2014, according to its most accurate forecasters, after a third-quarter slide that was the steepest among Asia’s emerging-market currencies.

The won will strengthen 4.5 percent to 1,020 per dollar, supported by the trade surplus, says Credit Agricole CIB, which Bloomberg data show had the closest won estimates in the year through Sept. 30. Second-ranked ING Groep NV predicts a 5.6 percent gain from yesterday’s close of 1,066.10. The currency sank 4.1 percent in the July-September period.

“Korea’s external position is very healthy, with a sustained trade surplus and much improved external debt position,” Frances Cheung, the Hong Kong-based head of Asian rates strategy at Credit Agricole, said in an e-mail interview yesterday. “Short-term factors weakening the won include a strong dollar, expectations for Bank of Korea easing, a weak yen, and scattered worries of capital outflows, much of which I think are already in the price.”

The won’s prospects are brightening as a yen rebound makes it less likely South Korea will intervene to help its exporters compete against Japanese rivals. Bank of Korea Governor Lee Ju Yeol said in a regular parliamentary audit yesterday that the authorities are closely watching the weak yen’s impact, while Finance Minister Choi Kyung Hwan said Oct. 2 that a drop in the Japanese currency may hurt small Korean exporters.

Yen Rebound

The Japanese currency has strengthened 0.9 percent versus the dollar this month, after a 5.1 percent drop in September that was its steepest slide since January 2013. Against the won, it has gained 3.2 percent since sinking to a six-year low of 9.51 won on Sept. 25. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-used currencies excluding the yen, fell last month by the most since May 2012 as the prospect of U.S. interest-rate increases buoyed the greenback.

The won’s retreat versus the U.S. currency last month was spurred by speculation the Bank of Korea will lower its benchmark interest rate again this year to help the economy, after a reduction to 2.25 percent from 2.5 percent in August. The next review is scheduled for Oct. 15 and four out of six analysts surveyed by Bloomberg predict a cut to 2 percent, while two see no change.

The Bank of Korea predicts the nation’s current-account surplus will widen to a record $84 billion this year, with the trade surplus forecast to be an all-time high of $89 billion, according to a July 10 statement. South Korea’s external debt maturing in one year or less amounted to $131.8 billion at the end of June, the latest figures from the central bank show, down from $190.1 billion in September 2008.

Forecasts Cut

The won is forecast to advance to 1,030 per dollar by Dec. 31, based on the median estimate in a Bloomberg survey. The projection has weakened from 1,017 in the past month. Bloomberg rankings were determined by averaging scores on margin of error, timing and directional accuracy.

Goldman Sachs Group Inc., Scotiabank and ING all cut won estimates in the past month.

Goldman revised its forecast to reflect a stronger dollar and moderate economic growth momentum, Seoul-based economist Kwon Goohoon wrote in a Sept. 29 report. The bank weakened its three-month prediction to 1,060 per dollar from 1,030. Scotiabank’s year-end projection was changed to 1,060 from 1,040, Sacha Tihanyi, a Hong Kong-based strategist, said yesterday. ING cut its estimate to 1,010 from 990.

“The won has been vulnerable to depreciation spikes in the yen since the dollar-yen began its rise from 80 in the fourth quarter of 2012,” Tim Condon, the Singapore-based head of Asia research at ING, said in an e-mail interview yesterday. “I expect the yen now will stabilize around 108-110 for the rest of the year, and the won will retrace toward 1,010.”

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