Won Snaps Losing Weekly Streak as Exports Give Boost With Oil

Updated on
  • Shipment numbers suggest exports may have rebounded in May
  • Fed rate increase may reduce odds for Korea rate cut: Daewoo

South Korea’s won saw its first weekly gain in a month as a rebound in oil bolstered appetite for emerging-market assets and investors priced in higher U.S. interest rates.

The currency led an advance in Asia this week ahead of comments from Federal Reserve Chair Janet Yellen later Friday, when she may give a clearer picture on when rates will rise. Futures show greater odds for that happening in July rather than at the June meeting. The chance Bank of Korea will cut borrowing costs again are diminishing on the prospect of tighter U.S. monetary policy and after data suggested the Asian nation’s exports are reviving, according to Daewoo Securities.

“Strength in recent export figures gave a further boost to the won this week,” said Daeil Suh, an economist in Seoul at Daewoo Securities. “If the U.S. raises its rate in June, it would be difficult for the Bank of Korea to go ahead with a rate cut.”

The won appreciated 0.9 percent from May 20 to 1,179.30 per dollar as of the 3 p.m. close in Seoul, prices from local banks compiled by Bloomberg show. It climbed to 1,177.25 on Friday, the strongest level since May 17. The Bloomberg Dollar Spot Index fell and halted a three week run of gains.

June odds for a U.S. rate hike stand at 28 percent and 51 percent for July. Brent crude headed for a third weekly advance after rising through $50 a barrel on Thursday for the first time since November. The price was down 0.8 percent at $49.20 on Friday.

Rising Exports

This month’s weakness in the currency may prove a boon to exporters. The won is down 3.4 percent in May, Asia’s worst performance after Malaysia’s ringgit. South Korea’s overseas shipments rose 2.1 percent in the first 20 days of the month, customs service data showed on May 21. Exports contracted for 16 straight months through April and the full figures for May are due for release on June 1. Current account and inflation numbers are also out the same day.

The Bank of Korea left its key rate at a record-low 1.5 percent earlier this month. Three-year government bond yields were little changed for the week at 1.47 percent, suggesting investors aren’t convinced of a possible further cut. A Bloomberg index of the nation’s local-currency notes is up 0.1 percent in May.