Exchange Rate Hits the 1,330-Won Range Intraday... Securities Analysts Say the Upper 1,200-Won Range Is Also Possible

[Financial News] The won–U.S. dollar exchange rate briefly fell to the 1,330-won range intraday, prompting securities analysts to rapidly lower their exchange-rate expectations. Some forecasts suggest that if the one-sided won-strengthening trend continues, the rate could fall beyond the low 1,300-won range to the upper 1,200-won range. However, others say the recent sharp decline could revive demand for dollar purchases, indicating that the current level may be close to a short-term bottom.
In the Seoul Foreign Exchange Market on the 7th, the won–U.S. dollar exchange rate stood at 1,340.7 won as of 3:30 p.m., down 9.4 won from the previous trading day. The rate fell as low as 1,334.7 won intraday, entering the 1,330-won range, before partially recovering its losses. Compared with the intraday high of 1,559.2 won recorded on July 1, it had fallen by as much as 224.5 won in just over two months.
The recent decline in the exchange rate is attributed to steady dollar-selling volume from exporters, combined with expectations of additional dollar supply following companies' shareholder-return announcements. Analysts say the rate was pushed lower as exporters followed SK hynix's conversion of American Depositary Receipts (ADRs) into dollars in July with further dollar selling.
Kwon Amin, a researcher at NH Investment & Securities, wrote in a report on the 4th, "Recently, corporate dollar supply driven by strong exports has stood out more than dollar demand, shifting the balance of short-term supply and demand in favor of supply." Considering stronger-than-expected corporate dollar supply, Kwon said the short-term downside should be opened to the low 1,300-won range, below the previous forecast, and projected an average exchange rate of 1,380 won for the fourth quarter.
The possibility of a decline below the 1,300-won level is also being discussed. Moon Da-woon, a researcher at Korea Investment & Securities, said, "We previously expected the won–U.S. dollar exchange rate to fall to the low 1,300-won range, but given the current one-sided won-strengthening trend, the possibility of entering the upper 1,200-won range is also open."
However, Moon expects the recent rapid pace of decline to ease even if the exchange rate falls further. "The authorities are adjusting policy to prevent the exchange rate from falling, so even if it declines further, the pace will be moderated," Moon explained. "The resumption of dollar purchases by the National Pension Service and increased pressure for a stronger dollar due to U.S. interest-rate hikes could also drive a rebound in the exchange rate."
Structural dollar demand from individuals investing in overseas stocks and from overseas direct investment continues to support the downside of the exchange rate. Analysts say the rate could rebound if the National Pension Service's strategic currency hedging ends or if dollar purchases for overseas investment by domestic investors increase. The possibility that a substantial portion of dollar-selling volume related to corporate shareholder returns and capital expenditure has already been exhausted is also cited as a factor that could support a short-term rebound.
Cho Yong Gu, a research fellow at Shinyoung Securities, said, "Although it is difficult to specify an exact bottom, we believe the current exchange rate has reached a level near its short-term bottom." He added, "A substantial portion of companies' dollar-selling volume related to this year's dividends, shareholder returns and capital expenditure appears to have been exhausted, while dollar purchases by the National Pension Service and domestic investors for overseas investment could also enter the market."
Cho said, "A meaningful change has emerged in supply and demand as companies began converting dollars, something they had previously been reluctant to do." He forecast, "We previously expected next year's exchange rate to remain in the upper 1,300-won range, but conditions have changed so that it could fall to around 1,300 won in the first half of next year."
[email protected] Lee Jeong-hwa Reporter