KRW likely to be under modest weakening pressure against USD towards 2016-end

The South Korean won is expected to continue to reflect changes in global investor confidence as the South Korean economy is one of the most open economies amongst its peers in the region, said Commerzbank in a research note.

In the near term, the South Korean won is likely to be underpinned by the portfolio inflows. But the expectations of market participants about the US Fed tightening its policy would probably put the won under modest weakening pressure against the USD by towards the end of 2016, according to Commerzbank.

“We expect USD/KRW to close 2016 at 1200”, added Commerzbank.

Meanwhile, the country’s sovereign credit rating outlook is stable after the rebound in the credit quality last year. South Korea’s long-term foreign currency ratings at present are: Fitch: “AA”, Standard & Poor’s: “AA-” and Moody’s: “Aa2”, said Commerzbank.

Market metrics indicate towards a rebound in the perception of global market about creditworthiness of South Korea. Currently, the five-year credit default swap is trading at 50 basis points following its peak at a bit over 80 basis points in February. It is lower than the six-month average of about 60 basis points.