USD/KRW: Won weakness is overdone, BoK to limit the downside – TDS

While the South Korean won has weakened sharply over recent sessions, economists at TD Securities think its decline looks overdone. 

See – USD/KRW: Scope for the recent move higher to extend as far as 1200 – Credit Suisse

Equity outflows have weighed on KRW

“Sentiment has been hit by rising covid cases, with the 7-day average rising to over 1.8k, and growing pressure on Korean stocks, fueling foreign outflows.”

“Technically, USD/KRW looks overbought as indicated by its RSI. Separately, USD/KRW is trading just above its 50% Fibonacci retracement level, which we think will act to limit further upside in the currency pair.” 

“The fall in KRW has been far larger than for other Asian currencies over recent sessions and we expect Bank of Korea to become increasingly resistant to further weakness.”

“From a fundamental perspective, we expect the BoK to continue to sound hawkish at its policy meeting next week despite the rise in covid cases given concerns about rising household debt. This could help limit scope for any further decline in KRW.”