Won Set to Make a Comeback on Bets of Central Bank Support

(Bloomberg) -- The worst may be over for the South Korean won on growing signs of central bank support and an upturn in exports, according to strategists.

The won is set to recover after falling to 1,400 per dollar, the lowest level in more than a year. Optimism is growing after a meeting of finance chiefs from South Korea, Japan and the US signaled increased appetite by the Asian counterparts to defend their respective currencies. 

The currency may strengthen to 1,335 per dollar by year-end as demand for the nation’s tech products improves and the likely start of the Federal Reserve’s easing cycle add to its appeal, according to Oversea-Chinese Banking Corp. 

“The 1,400 level should cap upside in dollar-won for now,” as there seems to be a psychological resistance for the dollar following the trilateral meeting, said Christopher Wong, an FX strategist at OCBC in Singapore. A stabilizing Chinese economy may also help, he added.   

Most emerging Asian currencies are trading within sight of multi-year lows as investors pile into the dollar amid bets US interest rates will stay higher for longer. That’s raising the prospect of local authorities across the region taking firmer action to stem the slide.  

Read more: Yellen’s Nod to Japan, Korea Adds Scope for Defending Yen, Won

Yet, some investors believe that while the Bank of Korea may work to slow the depreciation, the 1,400 level may not be a line in the sand for the authority. 

“I don’t think it will try to hold a firm line when it is part of a broader USD move,” said Alvin Tan, head of Asia FX strategy at Royal Bank of Canada in Singapore. 

Even so, data last week showed nascent signs of a revival in the economy, which will be a boon for the won. 

The nation’s exports in the first 20 days of April rose by 11% from a year earlier, while first-quarter gross domestic product expanded 3.4% from a year before, exceeding economists’ estimates of 2.5%. 

The currency, which declined more than 6% this year, closed little changed at 1,375.30 per dollar on Friday. 

The won may gain to reflect our more positive fundamental view of the economy, said Eddie Cheung, a senior emerging- markets strategist at Credit Agricole CIB.

The won may rise to 1,350 per dollar by the year-end, Cheung said. 

Here are the key Asian economic data this week:

--With assistance from Jaehyun Eom, Masaki Kondo and Malavika Kaur Makol.

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