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The USD/TWD currency pair is expected to catch up with gains in USD/KRW in the run-up to the island’s upcoming dividend season lasting from late June to early September and the general elections set for January 11, 2020, according to the latest research report from Scotiabank.
The KRW has been weakening substantially on lingering US-China trade tensions, deteriorating geopolitical situation and slowing domestic growth. In the months ahead, South Korea is expected to spur economic growth through fiscal stimulus rather than monetary easing as the central bank has vowed to ensure financial stability.
South Korean President Moon Jae-in said last Thursday that fiscal policy should take on a more active role in boosting jobs as well as strengthen the labor market’s safety net. President Moon added that fiscal measures should help improve short-term economic growth as well as improve the nation’s longer-term social structure, and asked the parliament to quickly approve the KRW6.7 trillion worth of extra budget proposed on April 24, the report added.
South Korean authorities are increasingly concerned about heard behavior in local FX market and have issued stern warnings against excessive movements. Kwon Min Soo, head of FX market team at the BoK, said on Monday that there is "no problem" for the central bank to sell dollars to cap the won’s weakness, according to Newspim.
Moreover, China has reiterated to keep the yuan exchange rate basically stable at a reasonable and balanced level, which could stabilize market sentiment to some extent amid escalating US-China trade tensions. In addition, the TWSE share index will be facing some headwinds given Chinese telecom giant Huawei’s tight ties with Taiwan’s IC supply chain.
"On the other side, if risk sentiment improves after a possible Trump-Xi meeting at the G-20 Osaka Summit set for June 28-29, the KRW will recoup some of its recent losses at a faster pace compared to the TWD. We would like to sell TWD/KRW cross at 38.0 now with a target of 36.0 and a stop of 39.0," Scotiabank further commented in the report.
