Economists at ANZ bank see the recent rebound in the KRW as temporary and expect it to weaken towards 1,450 against the Dollar by end-2022.

A widening yield differential in favour of the US will keep the KRW weak

“Although the KRW managed to rebound in the past week on the back of a pullback in the DXY and as concerns over credit stress domestically ease, we see this as a temporary recovery and expect the Won to weaken towards 1,450 by end-2022.”

“Aside from a challenging current account outlook, a sharp tightening in financial conditions to levels last seen during the Global Financial Crisis signal the potential for a sharp growth slowdown in the coming quarters. These downside growth risks suggest the BoK will end their monetary policy tightening cycle with a much lower policy rate compared to the US Fed (3.50% vs 5.00% by Q1 2023). A widening yield differential in favour of the US will keep the KRW weak, at least in the near term.”

“Further out, however, there are reasons to believe that 2022 will mark the worst of South Korea’s BoP pressure. While we expect the current account surplus to shrink further in 2023, there is scope for a sharper improvement in the financial account.”