KRW likely to depreciate against USD in 2017

The U.S. military has moved parts of the Terminal High Altitude Area Defence (THAAD) anti-ballistic missile system into its planned deployment site in South Korea. This planned deployment has been strongly opposed by China, which can deploy economic sanctions against South Korea.

China is said to have already banned cosmetic and entertainment related products from South Korea in the past few months. It has also reportedly suspended tour packages to South Korea. Such additional measures might be a drag on the South Korean economy as 25 percent of its exports are shipped to China, noted Commerzbank in a research report. Also, China accounts for 63 percent of South Korea’s tourism revenue.

This underlines the significance of a stable Chinese economy and currency for the remainder of Asia. The South Korean won is likely to weaken against the U.S. dollar for the remainder of the year following the solid 8 percent rally year-to-date, according to Commerzbank. This is because of growth worries on China’s sanctions and monetary divergence with the U.S.

“We see USD/KRW at 1,180 by end-2017 vs from 1,126 currently”, added Commerzbank.