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Week in FX Asia – Are the South Koreans playing their “currency war” card?

Jumping on the rate cut bandwagon and keeping up with Australia this week was South Korea. It seems that more emerging economies do not want to be left stuck behind their own curves now that Abenomics is well in hand. Up until now, stealth intervention by the Bank of Korea was the name of the game and seemed to be having a limited impact.
After wrong footing markets with no change to its +2.75% policy rate last month, BoK finally pulled the trigger this week and delivered a -25bps rate cut.

Alongside the Central Bankers predictable rhetoric of subdued inflation and weaker industrial production data, the Yen’s recent weakness has clearly weighed on the mind of BoK Governor Kim Choong-soo. While unacknowledged, the RBA’s surprise overnight cash rate cut midweek, to a record low of +2.75%, may have also factored into Korean policy makers decision-making. Up until now and in a global world deprived of decent capital returns both of these countries have been a fund manager’s favorite for yield pick up.

Even the Bank of Thailand’s (BoT) Governor Prasarn Trairatvorakul is turning dovish and is shifting policy rhetoric toward cuts. Until now, tension between the Thai finance ministry and the Central Bank over the THB strength has been on high alert. However, the recent rift with the BoT and fears of foreign investment curbs are beginning to take its toll on the THB bulls now that the central bank is possibly considering a minimum holding period for foreign investors in Thai bonds. The THB has since lost half of its year-to-date gains (+4%) despite strength in other AXJ (Asia ex-Japan) currencies.

It seems more and more that a weak JPY and a slow global recovery is posing risks to Korea’s economy, and reason enough for the BoK to closely monitoring the forex market, similar to other emerging economies. This is the new norm for APAC economies now that Japan has free rein to weaken its own currency.

 

WEEK AHEAD

* CNY New Yuan Loans
* USD Advance Retail Sales
* EUR German Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* EUR German Gross Domestic Product
* GBP UK Jobless Claims Change
* EUR Euro-Zone Gross Domestic Product
* GBP Bank of England Inflation Report
* JPY Gross Domestic Product
* EUR Euro-Zone Consumer Price Index
* USD Consumer Price Index
* CAD Consumer Price Index
* CAD Bank Canada Consumer Price Index Core
* USD U. of Michigan Confidence

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell [24]

Vice-President of Market Analysis at MarketPulse [25]
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell