Korea’s Won Rallies Most Since July 2013 as Yen Rises, Oil Drops

The won strengthened the most since July 2013 after an advance in Japan’s yen eased concern South Korea’s exports are losing their competitiveness and as investors bet a plunge in oil prices will benefit the economy.

The yen has climbed 1.1 percent against the dollar in two days as oil fell to a five-year low, prompting investors to seek the relative safety of the Japanese currency. The yen and won tend to track each other because companies in the two countries compete in overseas markets. A 10 percent decline in oil prices would add 45 basis points to South Korea’s gross domestic product growth, Bank of America Corp. economists wrote in a Dec. 1 report.

The won appreciated 1.2 percent to close at 1,086.44 a dollar in Seoul, paring this quarter’s loss to 2.9 percent, according to prices compiled by Bloomberg. It rose to 1,086.38 earlier today, the strongest level since Nov. 10.

“The dollar-won rate is seeing a relatively big correction as the recent won weakness was excessive considering the currency’s positive fundamentals,” said Jeon Seung Ji, a Seoul-based currency analyst at Samsung Futures Inc. “We typically see high demand for dollars in winter, and the drop in oil prices will be supportive for the won.”

Oil has slumped about 45 percent this year as the Organization of Petroleum Exporting Countries sought to defend market share amid a U.S. shale boom that is exacerbating a global glut.

“The fundamental benefits to South Korea of lower oil prices are also coming through,” said Patrick Bennett, a Hong Kong-based strategist at Canadian Imperial Bank of Commerce. The oil drop will widen South Korea’s current-account excess and cut costs for businesses, according to Bennett.

Current Account

South Korea’s surplus rose to $9.01 billion in October, according to latest central bank figures. The monetary authority forecast the gap in the broadest measure of trade will reach $84 billion this year and $70 billion in 2015, according to an Oct. 15 statement.

The won gained the most in Asia today. Indonesia’s rupiah earlier fell to the weakest since November 2008, before trading higher after the central bank intervened. India’s rupee declined for a second day, while Malaysia’s ringgit gained 0.2 percent and Taiwan’s dollar appreciated 0.1 percent. The yen rose 0.4 percent to 117.30.

“The drop in the dollar-yen rate is triggering some unwinding of long-dollar bets against the won,” said Park Dae Bong, a Seoul-based currency trader at Nonghyup Bank. “We don’t see many dollar-buying orders from importers either.”

South Korea’s government bonds gained, with the yield on the benchmark 10-year notes dropping three basis points, or 0.03 percentage point, to 2.67 percent, Korea Exchange Prices show. The three-year yield advanced one basis point to 2.14 percent. The Kospi index of shares closed at the lowest level since October as overseas funds were net sellers for a fifth day, exchange data show.

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