Korea's Won Declines a Third Week as China Spurs Risk Aversion

  • Won is worst Asia performer as $1.3 billion pulled from stocks
  • BOK held rates at record low and cut economic forecasts

The South Korean won fell for a third week after the central bank cut economic forecasts just as growth slows in China, its biggest trading partner.

The won is Asia’s worst-performing currency this year after global funds sold more than $1.3 billion of the nation’s shares as a slump in Chinese equities and a depreciating yuan damped risk appetite. South Korea faces a challenging export environment partly due to low oil prices, new Finance Minister Yoo Il Ho said on Friday, adding that the authorities will take “swift” action in the currency market if sharp volatility is seen.

"Risk aversion is the biggest factor for the won at the moment as the Chinese market is so unpredictable," said Lee Dae Ho, a currency analyst in Seoul at Hyundai Futures Corp. “The authorities will try to address the concern over foreign outflows to ease currency volatility."

The won declined 1.3 percent for the week to close at 1,213.16 a dollar in Seoul, taking its loss this year to 3.4 percent, according to data compiled by Bloomberg. It weakened to a five-year low of 1,215.26 on Thursday. The currency was little changed on Friday. Lee forecasts a range of 1,200 to 1,230 through month-end.

Bond Market

The Bank of Korea lowered its 2016 growth forecast to 3 percent from 3.2 percent on Thursday after keeping the benchmark interest rate at a record low of 1.5 percent. Consumer prices will rise 1.4 percent, versus the previous estimate of 1.7 percent. Governor Lee Ju Yeol cited uncertainties to the nation’s outlook and said capital flows volatility will remain large for now due to China.

The won’s weakness along with China’s yuan is “inevitable” considering the close relations, said Lee, adding that the BOK will closely monitor the yuan.

Ten-year government bonds rose for a fifth week, with the yield falling three basis points to 2.02 percent, Korea Exchange prices show. It dropped one basis point on Friday after reaching 1.99 percent in the previous session, the lowest on record for a benchmark of that maturity. The three-year yield declined one basis point from Jan. 8 to 1.66 percent. 

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