USD/KRW: A lot of good news priced into the Korean won, with none of the risks – MUFG
|The USD/KRW is expected to trade in the 1175.0/1235.0 range during the third quarter according to analysts at MUFG Bank. They forecast the pair at 1185.0 by the first quarter of 2021.
Key Quotes
“The Korean won zagged when we erroneously thought it’d zigged, to finish much stronger as USD/KRW fell to 1202.6 in June from a May London close of 1237.1; June’s close was nearly identical with April’s close. BOK is considering less general monetary stimulus, which confirms its reluctance to cut further.”
“Trump’s reluctance to come down too hard on China, as detailed in Bolton’s book, suggests that while campaign rhetoric may fly, the key is whether Trump’s actions truly roil variables that matter (eg, world trade). Discounting some of Trump’s Threats lowers the 3Q20 forecast. Intra-quarter, it’s not that the won could not rally farther in July and August, but it may be nearer the limits of its 3Q20 rally already.”
“Global Markets may not care enough about places like Latin America and South Asia, but the US always matter, and here it will take some time for enforced discipline to corral the US curve. The US’s overall drunken response to the coronavirus will delay a true world recovery.”
“The standard equity strategy that applies here is to buy before the real economy recovers, so whenever the real economy truly recovers, the equity rally will also end. In addition, relevant for equity markets and hence for equity currencies like KRW and TWD, we have added more risk of Trump losing re-election in farther horizon forecasts. Such a result brings up possibilities of rolling back Trump’s tax cuts, which have benefited stocks so much.”
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