KRW: HSBC Updated Thinking On USD/KRW
The global bank updates its thinking on USD/KRW. With the pair normalizing from political volatility, it sees focus shifting back to traditional drivers, which still may present upside risks for USD/KRW per the bank. See below for more details.
HSBC: "The BoK cut rates as widely expected and suggested that there could still be 1-2 cuts more. When it held rates unchanged at its 16 January meeting, the BoK said USD-KRW had overshot its fundamental level by 30 won because of political events. Since then, USD-KRW has fallen by c25 won. And compared to the high levels reached in late December, it has fallen by c40 won. A reduction of long USD-KRW positioning (from being the most long USD-Asia pair in December to being the fourth as of 20 February, according to a Reuters poll) and the NPS’s supposedly activated FX hedging mechanism (Yonhap, 7 January) have likely helped.
With USD-KRW normalising from political volatility, we focus on its more typical drivers: major currencies’ trajectories (USD, RMB, JPY), global equity market performance (proxy for risk appetite), US yields (typically has a slightly higher explanatory power for USD-KRW than the US-Korea yield differential), US tariff headlines (be it for key local industries like autos and semiconductors, or regarding China due to the economic linkages) and the FX demand-supply flow picture. We think USD-KRW still faces upward pressure from these sources. We await more details on the NPS’s January balance sheet – likely to be published at the end of March – to ascertain if its FX hedging seem sufficient to contain the upside.
High frequency indicators suggest that there are still persistent (albeit slightly lower versus 4Q24) equity outflows by foreigners. Last year, according to balance of payments data, retail investors bought USD24bn of foreign equities and bonds, but asset managers bought even more – USD30bn – while the NPS temporarily curbed its medium-term divestment strategy to only buy USD13bn. The silver lining is that spot DRAM prices have been rising in recent weeks (after falling for the past few months) and new tech orders in the BoK’s Business Sentiment Index rose sharply in February. But it is difficult to say if this is related to “front-loading” ahead of tariff deadlines (2 April for semiconductor tariffs)."
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JGBS: Futures Up-Ticked Overnight Friday, Trump Tariff News On Sunday In Play
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- US stock futures have re-opened lower ahead of key earnings week, with the S&P 500 down ~0.50% and the Nasdaq down ~1%.
- “In a social media post on Sunday, Trump said he ordered an emergency 25% tariff on all Colombian goods coming into the US, which will be raised to 50% in a week. Oil, gold, coffee and flowers top the list of exports, according to Colombia’s tax authorities.” (per BBG)
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- Meanwhile, U.Mich long-run inflation expectations were trimmed in the final January release from what had been a particularly sharp increase to the highest since 2008. 3.2% is still elevated though, having twice in the past three months exceeded what had been a typical 2.9-3.1% range since mid-2021.
- Focus this week is the FOMC policy announcement on Wednesday.
AUSSIE 3-YEAR TECHS: (H5) Corrective Bounce
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.730/932 - High Sep 17 / 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.190/360 High Dec 31 / High Dec 11
- PRICE: 96.110 @ 15:48 GMT Jan 24
- SUP 1: 95.830 - 1.000 proj of the Dec 11 - 20 - 31 price swing
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
A bear cycle in Aussie 3-yr futures remains intact and short-term gains are considered corrective. The recent move down reinforces the bear theme and the contract has traded through the December low. A deeper sell-off would refocus attention on 95.760, the 14 Nov ‘24 low. On the upside, a clear reversal would instead signal scope for an extension towards 96.190, the Dec 31 high, and 96.360, the Dec 11 high.
