Market braces for stronger dollar

By Park Hyong-ki

The local market needs to brace for a stronger U.S. dollar at least until the first fiscal quarter of next year, analysts say.

The value of the Korean won has weakened beyond the psychological threshold of 1,200 won against the dollar for the first time in nine months. The currency market opened at 1,205 won to the dollar Friday.

Analysts are forecasting the won to depreciate as much as 1,230 won, but its depreciation rate would be slow as the financial authorities are expected to further intervene in the currency market to resist a weaker and volatile won.

“The authorities have seemingly intervened in the market when the won depreciated to 1,200 won Thursday. The local currency will face some limits in the rate of depreciation following other Asian markets’ resistance to weaker currencies,” said Ha Keon-hyeong, analyst at Shinhan Financial Investment.

The won has been volatile most of this year on growing expectation for the U.S. Federal Reserve’s rate hike in December.

It depreciated at a fast pace on foreign capital outflows since the U.S. central bank decided to raise its key rate by 25 basis points to 0.5-0.7 percent last week.

Since then, the value of the dollar has strengthened to its highest level against six major currencies, including the euro and Japanese yen since December 2002.

A stronger dollar would burden U.S. exports in a conventional sense given that the incoming Trump administration would want to boost the competitiveness of U.S. companies at home and abroad.

However, global capital is reallocated to the U.S. because it is one of the very few economies showing positive outlooks next year, analysts say.

As the Fed’s dot plot indicates three more rate hikes next year with its outlook on its long-term market interest rates revised from 2.9 percent to 3 percent, more capital outflows from Asian markets are expected regardless of their strong credit ratings.

“This is going to raise concerns over capital exodus. Even though Japan is considered a safe market, and Korea, Singapore and Malaysia in Asia have relatively high ratings, their currencies depreciated fast,” said Kim Doo-un, analyst at Hana Financial Investment.

The analyst forecast the dollar to gain until the first quarter of next year, and may slow down as Asian economies seek to limit the weakness of their currencies when commodity prices rebound and burden their import prices, abruptly fueling inflation.