South Korean Won: Strong exports and BoK stance back gradual KRW gains – Commerzbank

Commerzbank notes that South Korea's booming exports and a significant trade surplus, supported by a hawkish Bank of Korea, bode well for the Korean Won. They anticipate a more measured appreciation within a defined range after a substantial USD/KRW drop from 1,550. South Korea's exports skyrocketed by 68.7% year-over-year in August, up from a 63.0% surge in July, marking the 15th consecutive month of expansion.

The surge was predominantly driven by the technology sector, with semiconductor exports leaping 209% year-over-year to $46.7 billion and computer exports soaring 420%. This robust external cycle bolsters the Bank of Korea's recent upward revision of its 2026 GDP growth forecast to 3.3% from 2.6% in August. While headline CPI inflation stood at 3.1% year-over-year, edging below expectations, the modest increase is seen as a positive sign.

The Bank of Korea is expected to maintain its hawkish stance, with a likely pause in interest rate hikes in October. Recent shifts in foreign exchange flows, such as corporate repatriation and heightened National Pension Service hedging, will enable a larger portion of the external surplus to bolster the KRW. Despite multiple rate hikes by the Bank of Korea, inflation remains above their 2% target, and economic activity is still exceptionally strong.

Core inflation, which excludes agriculture and oil, rose to 3.1% in September, further underscoring the central bank's cautious approach.