FX Rate Falls for a Second Day…Did Exporters’ Conversion Pressure Work?

Large Inflow of Semiconductor Proceeds into the Domestic Market

“Dollar Selling Helps Stabilize the FX Rate”

April Foreign Dividend Season Is a Key Test

Analysis suggests that upward pressure on the won-dollar exchange rate is easing as exporters—including semiconductor firms—convert large amounts of dollars they earned into won. The government’s request late last year for major exporters to step up conversions, made when FX-market anxiety was escalating, is now being seen as helping stabilize the exchange rate amid heightened uncertainty driven by the Iran war.

On the 11th, the won-dollar exchange rate in the Seoul FX market (as of 3:30 p.m.) ended daytime trading at 1,466.50 won, down 2.7 won from the previous day. The rate extended its decline after plunging 26.30 won a day earlier to 1,469.20 won. It was the first time since the outbreak of the Iran situation that the exchange rate has fallen for two consecutive trading sessions.

The day’s drop was largely attributed to global factors, such as a slight pullback in international oil prices and the dollar index, despite the Iran situation continuing. Crude, which at one point topped $100 per barrel, has fallen sharply and is now hovering in the $80-per-barrel range. The dollar index, which measures the greenback against a basket of six major currencies, came in at 98.737, down 0.18% from the previous day.

Exporters’ dollar selling also weighed on the exchange rate. Min Kyung-won, a researcher at Woori Bank, said, “Exporters that confirmed the won nearing 1,500 on the 9th was a temporary move are returning to the FX market,” adding, “Exporters’ dollar selling is capping the upside in the exchange rate.”

According to FX authorities, exporters’ dollar-selling has strengthened noticeably since last month. Analysts say that the push for conversions, after Deputy Prime Minister and Minister of Finance and Economy Koo Yun-cheol met with executives from exporters such as Samsung Electronics late last year, is showing effects this year.

Authorities in particular believe that the exchange rate’s fall into the 1,420s in late last month—just before the war—was significantly influenced by semiconductor and shipbuilding companies converting export proceeds. Bank of Korea Governor Rhee Chang-yong also said at a monetary policy briefing late last month, “Recently, companies have started selling the dollars they hold, and supply-demand factors are pushing the exchange rate lower,” adding, “Supply-demand conditions have improved compared with year-end.”

Still, it remains unclear whether the downtrend will continue. With the direction of the Iran situation shifting by the moment, another variable is that the dividend season begins next month. Demand could surge as foreign investors in Korean stocks seek to convert dividends they receive into dollars.

Reporter Kang Jin-gyu josep@hankyung.com