By Choi Sung-jin
Since the foreign exchange market opened this year's trading last Monday, the Korean currency has lost 37.3 won against the U.S. dollar, more than half of its loss of 73.2 won in 2015.
This foretells how the exchange rate is likely to fluctuate this year, considering that the won is one of those currencies influenced most by economic situations in the G2, market watchers said Tuesday.
On Monday, the Korean currency ended trading at 1,209.8 won per greenback, the lowest level in five-and-a-half years. When the Shanghai Stock Exchange index plunged nearly 7 percent last Thursday, the Korean monetary unit also sank 15.2 won.
The won's fall is attributable to the yuan's weakness, as the two currencies have moved in tandem lately. The Chinese government recently devalued its currency sharply to bolster exports and boost its economy, forcing the yuan to fall to its lowest level in five years.
Conversely, that means the strengthening of the U.S. dollar, which has risen against most currencies since the Federal Reserve raised its benchmark interest rate last month. Despite the financial unrest in China, the Fed is likely to raise interest rate further, encouraged by the improving U.S. jobs reports released recently, further pushing up its currency.
Domestic analysts forecast the won is to remain weak, because the downturn of its Chinese counterpart is hard to reverse. "If the Chinese government intervenes in the currency market, it may be able to firm up the yuan temporarily," said a fellow at the LG Research Institute. "Unless Beijing can solve the fundamental problem of a slowing economy, however, its currency will be unable to regain its strength."
The think tank forecasts the won-dollar parity rate for 2016 to be about 1,175 won, but it could fall further if the yuan's weakness continues.
Another researcher also summed up this year's currency markets in one word -- volatility."
The U.S. is squeezing its money supply while China and Japan are loosening theirs," said Hong Jun-pyo of Hyundai Research Institute. "Korean currency markets will fluctuate wildly this year, as the imbalance in major countries' monetary currencies continues and the likelihood of emerging economies' financial crises increases because of the U.S. interest rate hikes and falls in international commodity prices."
Meanwhile, the weakening yuan will likely force Korean businesses to revise their export strategy, a state-run think tank said.
"The yuan's depreciation will lead to the increase of China's exports, which means Korean exports of intermediary goods to China will also rise, such as semiconductors, computers and cellphone parts," said the Korea Institute for International Economic Policy. "Korean exporters that vie with Chinese rivals in international markets, however, could see their shipments decline."
Korean exporters will need to focus on durable consumer goods in which they have a competitive edge over their Chinese rivals, while also selling non-durable goods, such as fresh farm produce and cosmetics, by making the most of the geographical proximity between the countries, the report advised. It said exporters should use e-commerce more to advance into China's domestic markets.
Since the foreign exchange market opened this year's trading last Monday, the Korean currency has lost 37.3 won against the U.S. dollar, more than half of its loss of 73.2 won in 2015.
This foretells how the exchange rate is likely to fluctuate this year, considering that the won is one of those currencies influenced most by economic situations in the G2, market watchers said Tuesday.
On Monday, the Korean currency ended trading at 1,209.8 won per greenback, the lowest level in five-and-a-half years. When the Shanghai Stock Exchange index plunged nearly 7 percent last Thursday, the Korean monetary unit also sank 15.2 won.
The won's fall is attributable to the yuan's weakness, as the two currencies have moved in tandem lately. The Chinese government recently devalued its currency sharply to bolster exports and boost its economy, forcing the yuan to fall to its lowest level in five years.
Conversely, that means the strengthening of the U.S. dollar, which has risen against most currencies since the Federal Reserve raised its benchmark interest rate last month. Despite the financial unrest in China, the Fed is likely to raise interest rate further, encouraged by the improving U.S. jobs reports released recently, further pushing up its currency.
Domestic analysts forecast the won is to remain weak, because the downturn of its Chinese counterpart is hard to reverse. "If the Chinese government intervenes in the currency market, it may be able to firm up the yuan temporarily," said a fellow at the LG Research Institute. "Unless Beijing can solve the fundamental problem of a slowing economy, however, its currency will be unable to regain its strength."
The think tank forecasts the won-dollar parity rate for 2016 to be about 1,175 won, but it could fall further if the yuan's weakness continues.
Another researcher also summed up this year's currency markets in one word -- volatility."
The U.S. is squeezing its money supply while China and Japan are loosening theirs," said Hong Jun-pyo of Hyundai Research Institute. "Korean currency markets will fluctuate wildly this year, as the imbalance in major countries' monetary currencies continues and the likelihood of emerging economies' financial crises increases because of the U.S. interest rate hikes and falls in international commodity prices."
Meanwhile, the weakening yuan will likely force Korean businesses to revise their export strategy, a state-run think tank said.
"The yuan's depreciation will lead to the increase of China's exports, which means Korean exports of intermediary goods to China will also rise, such as semiconductors, computers and cellphone parts," said the Korea Institute for International Economic Policy. "Korean exporters that vie with Chinese rivals in international markets, however, could see their shipments decline."
Korean exporters will need to focus on durable consumer goods in which they have a competitive edge over their Chinese rivals, while also selling non-durable goods, such as fresh farm produce and cosmetics, by making the most of the geographical proximity between the countries, the report advised. It said exporters should use e-commerce more to advance into China's domestic markets.
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