Won poised for rally as economic optimism eclipses virus concern

by Bloomberg Apr 18, 2021

The won is set to advance as expectations of faster economic growth help the South Korean currency break out of its narrow trading range.

The won has been trapped between its 100- and 200-day moving averages against the dollar as rising virus cases and dividend payments by companies dulled the effect of an improving trade outlook. However, the Bank of Korea last week upgraded its 2021 growth forecast to mid-3% from 3% in February, tipping the scales in favor of the won strengthening toward 1,100 this quarter.

“Once April passes, improving indicators at home should help buoy the won,” said Kim Yumi, a market strategist at Kiwoom Securities Co. in Seoul.

The nation’s trade data on Wednesday could provide near-term cues for the won. The currency has risen 1.4% this month to 1,116.50 to be the biggest gainer among emerging Asian currencies. It was the region’s second-worst performer in the last quarter, after the baht, as rising U.S. yields wrought havoc on developing-economy assets.

However, a recent slide in Treasury yields, despite strong U.S. inflation and employment data, could add to the won’s strength. The dollar-won is hovering above initial support at its 100-day moving average. A breach of that level opens the door for the currency pair to test the February low of 1,097.25 and even potentially its year-to-date low of 1,080.35 recorded on Jan. 4.

The main driver of the won’s strength will be the greenback, “which is expected to be weighed around June due to recoveries in the European economy and the euro,” according to Yumi. She expects the won to strengthen past 1,100 per dollar in the latter half of this quarter.

Below are the key Asian economic data and events due this week:

Monday, April 19: Japan trade balance and industrial production, Philippine BoP overall
Tuesday, April 20: RBA minutes, China 1-year and 5-year loan prime rate, Bank Indonesia policy decision
Wednesday, April 21: Australia retail sales, New Zealand 1Q CPI, South Korea PPI and 20-day exports/imports
Thursday, April 22: Australia 1Q business confidence, Thailand customs trade balance
Friday, April 23: Japan CPI and PMIs, Singapore CPI, Malaysia CPI