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The USD/KRW currency pair is expected to trade in the range of 1,110-1,180 during this month. The hydrogen bomb tested Sunday by North Korea will dampen market sentiment and undermine risky assets including most EM Asian currencies particularly the high-beta KRW.
The Washington Post reported Saturday that US President Donald Trump has instructed advisers to prepare to withdraw the nation from a free-trade agreement (FTA) with South Korea, citing several people close to the process. It could be attributed to what he considers unfair trade competition from other countries, although Trump’s top national security and economic advisers opposed the plan.
In addition, South Korea's military said Sunday that North Korea is believed to have conducted its sixth nuclear test after it detected an artificial 5.6 magnitude earthquake near Pyongyang’s known nuclear test site. Hours earlier, North Korea claimed that its leader has inspected a hydrogen bomb meant for a new intercontinental ballistic missile (ICBM).
Yonhap News reported Sunday that it is too early to say whether North Korea has crossed the red line set by the South Korean president, citing a ranking official from South Korea's presidential office Cheong Wa Dae. South Korean President Moon Jae-in earlier said the weaponization of nuclear weapons and intercontinental ballistic missiles to carry them will mark the North's crossing of the red line.
"We reiterate here that the KRW will remain susceptible to external uncertainty including US political turmoil, US debt ceiling matter, global liquidity conditions and geopolitical situation on the Peninsula. USD/KRW will trade along with swinging risk sentiment due to North Korea’s provocation. Potential trade conflict between South Korea and the US could raise concern over the KRW as well," Scotiabank commented in its latest research report.
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