Korea Investment & Securities: “Even if the won/dollar exchange rate returns to the 1,330 won range, there will be additional downward pressure”

Korea Investment & Securities predicted on the 8th that the won/dollar exchange rate has recently fallen to the 1,330 won range and that the won's strength is likely to continue in the future.

Researcher Moondown said in a report that day, “There are now more factors pulling down the exchange rate compared to the past when the won/dollar exchange rate was in the 1,330 won range.”

Korea Investment & Securities expected the average won/dollar exchange rate in the fourth quarter to be 1,350 won and suggested an appropriate range of 1,280 to 1,420 won. Next year's average annual exchange rate is also expected to be around 1,350 won.

Researcher Moon cited the fact that dollars earned through exports began to flow into the domestic foreign exchange market as the biggest reason for the recent decline in exchange rates.

According to Korea Investment & Securities, the trade balance in September increased significantly to $49.8 billion and the current account balance to $41 billion.

In the past, even if Korea had a current account surplus, the exchange rate did not fall easily as companies often did not immediately exchange dollars for won. This is because expectations that the dollar will rise further have led to companies and investors delaying selling dollars and rushing to buy them.

On the other hand, it is said that the atmosphere has changed recently.

Researcher Moon explained, “As the trade balance and current account continue to have large surpluses, major export companies are turning to selling dollars, which is causing dollars to flow into the domestic foreign exchange market,” adding, “This is a factor in lowering the exchange rate.”

The improving expectations for the Korean economy are also expected to add strength to the strength of the won.

Based on the Bloomberg consensus (forecast), Korea's economic growth rate forecast for next year has recently risen to 2.5%, exceeding the US growth rate forecast of 2.1-2.2%.

Researcher Moon analyzed, “Korea’s growth rate forecast will continue to be revised upward next year and it is expected to show a growth advantage over the United States,” adding, “Such a difference in growth rate forecast could also have a positive effect on the won.”

However, it is expected that the exchange rate will not continue to fall at the same rate. As the recent decline has been large, a speed adjustment may occur.

Researcher Moon said, “The speed can be adjusted, such as the exchange rate falling further or taking a break and then falling again,” but added, “In a large trend, there is a high possibility of a downward adjustment of the exchange rate.”