Won-Dollar Rate Closes at 1,119 Won
By Yoon Ja-young
Staff Reporter
The local currency extended its winning streak against the dollar for the seventh consecutive day Monday, sending the rate below the 1,200 won mark and spawning fears that it will chip away at the competitiveness of exporters here.
Many analysts expect the won to continue gaining ground due to the dollar's weakness coupled with the strengthened fundamentals of Asia's fourth-largest economy.
The won closed at 1,119.8 won per greenback Monday, gaining 10.7 won from the previous day. It was the won's strongest level since Sept. 22, 2008, when it traded at 1,117 won. It has fallen 44.7 won from 1,164.5 won on Dec.31.
"The won-dollar rate is apparently returning to a normal level. The normalization is expected to continue through this year," said Jeong Yong-taek, an economist at KTB Investment & Securities.
"The won is currently very much undervalued," he said.
Analysts said overseas players are buying won and selling dollars on the back of the positive outlook for the Korean economy and the globally weak dollar
"A huge current account surplus, a record high foreign exchange reserve, and a quick economic recovery is making for the strong won," said Meritz Securities analyst Shim Jae-yub.
On top of the current account surplus, foreigners bought over 1 trillion won on the Seoul bourse last week.
Increasing orders received by local shipbuilders are also adding to the strong won.
Impact on Exporters
According to the Korea Development Institute (KDI), a 5 percent fall in the real effective exchange rate has lead to a 0.1 percent decrease in gross domestic product and cuts the current account surplus by $8.9 billion.
Some, however, say Korean exporters are competitive enough to survive this. "In the past, it was 'bulk exporting' depending on price competitiveness, but 'brand exporting' that relies on non-price competitiveness has increased much recently," KTB's Jeong said.
The strengthening could also work negatively on the stock market.
"The strengthening of the won will inevitably erode corporate profitability and weigh on the stock market," Prudential Investment & Securities analyst Lee Young-won said.
Analysts estimate that further strengthening of won is inevitable.
"Decreasing preference for safety assets and the continuing pressure on the dollar will lead to an even stronger won," KTB's Jeong said. He expected the rate to reach anywhere between 1,000 won and 1,050 won per dollar by the end of this year.
Korea Investment & Securities analyst Jun Min-gyu expects the won to stabilize at between 1,050 won and 1,100 won per dollar.
"The won traded at below 1,000 won per dollar in 2007 when orders for local shipbuilders marked explosive growth. That isn't likely to recur," he said.
For the short-term, however, analysts expect that the government may intervene to moderate the pace of appreciation.