Authorities intervene for third trading day…exchange rate reaches the 1420 won range

1429.8 won close…lowest in two months

Authorities are determined to manage year-end closing prices

Watch whether it will close in the 1420 won range today

Foreign exchange authorities intervened in the market for a third consecutive trading day, pushing the won–dollar exchange rate down into the 1420 won range (the won appreciated). As the authorities' determination to stabilize the exchange rate was confirmed, the market also lowered its expectations for the exchange rate.

On the 29th at the Seoul foreign exchange market, the won–dollar exchange rate (as of 3:30 p.m.) closed at 1429 won 80 jeon, down 10 won 50 jeon from the previous trading day. It is the first time in about two months that the weekly closing price has entered the 1420 won range since the 3rd of last month (1428 won 80 jeon).

That day, the exchange rate opened at 1440 won, down 30 jeon from the previous trading day, and fell sharply from the early session. It dropped to the low 1430 won per dollar in the morning, then rebounded to 1435 won in the afternoon before falling again just before the close. Market participants believe that volumes presumed to be intervention by the authorities also appeared that day.

The won–dollar exchange rate fell for three consecutive trading days starting on the 24th, when the authorities launched strong verbal intervention. After a drop of 33 won 80 jeon on the first day, it fell by around 10 won over the next two trading days. The three-day decline totaled 53 won 80 jeon, the largest since the -60 won recorded from April 10–14 eight months ago.

Foreigners' net buying of around 331.4 billion won in the stock market also contributed to the exchange rate decline that day. The People's Bank of China set the yuan–dollar central parity 0.04% lower, and the yen–dollar exchange rate fell, with Asian currencies generally strengthening.

Recently, when the exchange rate fell due to authorities' intervention, dollar buying at the low point emerged and caused a slight rebound, only to fall again when volumes from the authorities appeared. Moon Da-woon, a researcher at Korea Investment & Securities, said, "Dollar buying flows in whenever the exchange rate falls."

That the exchange rate continued to fall despite such buying is analyzed as reflecting the authorities' strong determination. Park Sang-hyun, senior advisor at iM Securities, said, "The exchange rate is falling sharply thanks to the government's strong verbal intervention and actual intervention," and "the exchange rate could fall to 1420 won this week."

It was also found that exporters, having confirmed the authorities' determination, sold dollars. There is also analysis that there was demand to convert dollars into won before the exchange rate fell further for year-end performance bonus payments.

With one day left before the close of the foreign exchange market for the year, the exchange rate falling into the 1420 won range has widened expectations that the year-end closing price, to be finalized on the 30th, will finish in the 1420 won range. The reason is that the authorities are unlikely to allow the exchange rate to show a rebound. This would be nearly 50 won lower than last year's year-end closing price (1472 won 50 jeon).

Reporter Kang Jin-gyu josep@hankyung.com