Foreigners’ ‘Sell Korea’ Streak Hits 10 Days, With Won Seen at 1,600 per Dollar

The won-dollar exchange rate is setting new post-global financial crisis highs almost daily, prompting brokerages to lift their forecasts for the second half. Some analysts say the upper end of the range may need to be widened to 1,600 won per dollar as persistent foreign selling of local equities and broad dollar strength keep upward pressure in place. Limited room for intervention by South Korean currency authorities is also reinforcing the high-rate outlook.

In Seoul trading on July 2, the won closed the daytime session at 1,555.8 per dollar, up 0.9 won from the previous day. It opened at 1,552.3 won, down 2.6 won, and fell as low as 1,550.7 won during the session before trimming losses late and ending higher. After finishing the previous session at 1,554.9 won, its highest daytime close since March 5, 2009, when it reached 1,568.0 won during the global financial crisis, the won pushed the peak higher again on July 2.

The won’s monthly average stood at 1,527.9 per dollar in June, the highest since February 1998, when it averaged 1,626.8 won in the aftermath of the IMF crisis. That marked the highest level in 28 years and four months. The first-half average also climbed to 1,484.6 won.

Analysts cite foreign selling as the biggest factor pushing the currency toward the top of its range. Overseas investors, net sellers of South Korean stocks for 10 straight trading days, sold about 4.3 trillion won ($3.1 billion) worth of Kospi shares on July 2. Markets are increasingly bracing for the won-dollar rate to remain elevated in the second half.

Kyobo Securities said the won-dollar rate’s upper end in the third quarter may need to be set at 1,600. South Korea’s cumulative trade surplus from the start of the year through the end of June totaled about $138 billion. Over the same period, foreign investors posted about $98 billion in net selling of domestic stocks. Exporters do not convert all of their dollar earnings into won, while proceeds from foreign equity sales add to demand for dollars, helping explain why the exchange rate has not eased despite the large trade surplus.

Limited firepower from the authorities is another factor behind calls for a higher ceiling. Based on the Bank of Korea’s past intervention pattern and the level of foreign-exchange reserves, Kyobo estimated the amount available to stabilize markets in the second half at roughly $50 billion at most. The National Pension Service’s currency-hedging capacity was also estimated at as much as $70 billion, based on its overseas investment balance as of April and its past hedge ratio of 15% to 20%. If foreign investors continue selling for portfolio rebalancing in the second half, that may not be enough to defend the market.

Wi Jae-hyun, an analyst at Kyobo Securities, said direct and verbal intervention has continued as the exchange rate climbed, but no obvious factor is in sight to cap gains if rebalancing-related foreign selling persists in the second half. Nomura also set 1,600 won as its won-dollar forecast, citing dollar strength driven by the Federal Reserve’s tightening stance.

Other brokerages are also lifting their exchange-rate forecasts. Moon Da-woon, an analyst at Korea Investment & Securities, said setting the upper end at 1,600 means risk managers should assume a broader psychological ceiling because it is difficult to know where the rate would be contained once it rises above 1,560. He added that 1,600 is not a target derived from macroeconomic variables or technical analysis, but a psychological upper bound that reflects upside risks. If foreign selling and dollar strength persist, he said, the timing of market intervention will also be hard to predict.

Jeon Gyu-yeon, an analyst at Hana Securities, said a hawkish Fed and a resilient US economy are likely to support dollar strength for the time being. Continued net foreign selling of domestic stocks and structural dollar outflows mean upside pressure remains dominant for the won-dollar rate. Still, exporter dollar-selling and market vigilance over intervention could slow the pace of gains near 1,560 won, she said.

Hana Securities recently gave average won-dollar forecasts of 1,545 for the third quarter and 1,530 for the fourth quarter. It also raised its full-year average forecast to 1,509 won from 1,460 won in its April outlook.

Park Sang-hyun, an analyst at iM Securities, said yen weakness is another variable to watch. If the yen’s sharp decline continues, the won is also likely to come under weakening pressure. If foreign stock selling coincides with a softer yen, the upper end of the won-dollar range could move higher.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com