South Korean Won: High-beta KRW needs foreign inflows – OCBC

OCBC’s Christopher Wong highlighted that the USD/KRW currency pair dipped as South Korean equities enjoyed a rebound and foreign investors turned net buyers for a brief moment. However, Wong cautioned that this might not signal a lasting change. He emphasized that the KRW remains a high-beta currency influenced by US yields, oil prices, and tech sentiment.

For a sustained recovery, it is crucial for foreign equity inflows to continue and US rates to ease. Over the Asian session, Korean stocks bounced back, with the KOSPI surging 2.66%, driven by semiconductor stocks. Foreign investors also netted around KRW439bn worth of equities during this period. The recent decline in oil prices and lower UST yields further bolstered the risk sentiment.

Nevertheless, analysts do not consider a single session as a definitive shift in the flow story. Despite Friday’s rebound, foreign equity selling has been a significant factor weighing down the KRW, especially within the large-cap technology sector. A more stable recovery in the KRW requires foreign investors to curb or reverse their selling tendencies.

While the semiconductor/export narrative remains optimistic, the KRW continues to exhibit high volatility due to its sensitivity to US yields, oil fluctuations, and shifts in tech sentiment. Softening US rates, combined with a more stable return of foreign equity inflows, could pave the way for additional KRW recovery. Conversely, renewed foreign selling, coupled with elevated rates or higher oil prices, would likely support the USD/KRW pair.

The USD/KRW closed at 1386 levels on Friday, with daily momentum remaining positive and the RSI nearing overbought conditions. Market risks are predominantly to the upside. The key resistance levels are at 1388 (23.6% Fibonacci retracement of July high to September low) and 1410 (50-day moving average).