South Korea is shrugging off speculation that it might intervene to slow recent gains in the won after Hong Kong’s central bank stepped in to damp its currency’s rise.
The won has risen more than 4% against the U.S. dollar this year, hitting a 13-month high last Friday after seven straight days of gains.
The concern for Seoul is that a stronger won is a weight on local exporters. Most Korean newspapers last week quoted traders and analysts who said they were closely watching whether authorities would step into the market as the exchange rate approached the psychologically important level of 1,100 won per dollar. Some speculated the government might move to tighten existing curbs on capital flows.
Recent stimulus measures by the U.S. Federal Reserve Board and the European Central Bank have led money managers to pump more liquidity into emerging markets, including South Korea and Hong Kong in Asia.
In response, some central banks in the region have sought to stop their currencies from strengthening further, to help keep their exports competitively priced.
The Hong Kong Monetary Authority on Saturday said it had bought US$603 million to prevent the Hong Kong dollar from rising too much. The Bank of Japan has recently threatened to slow the yen’s appreciation.
So far South Korean authorities have not acted visibly to curb the won’s rally, but some traders suspect they’ve intervened stealthily through their agent banks or by mobilizing state-linked corporations to invest in money markets.
After hitting a high of 1,103.30 on Friday, the dollar traded in a band of 1,103-1,106 on Monday.
Asked Friday if he was concerned about the won’s recent rise, Finance Minister Bahk Jae-wan gave an oblique response.
“I’m not supposed to comment on the pace of the won’s rise,” Mr. Bahk told reporters on the sidelines of a conference.
But he added: “You may want to look at the average base exchange rate, on which the budget was drawn up a year ago.”
Ministry officials later confirmed the budgeted rate for 2012 was 1,070 won per dollar — still above the current level. It may be a leap to assume that ‘s a level Seoul wants to defend, but it’s clear Mr. Bahk keeps it in mind.
For next year’s budget, the Finance Ministry has set the average base exchange rate at 1,130. Ministry officials cautioned that rate is relevant for dollar-based buying of military equipment or crude oil, for example, but doesn’t necessarily bind monetary-policy makers.
“If the won keeps rising next year, it would be a big concern for Korean exporters, but not for us because we could pay less in U.S. dollars” for government purchases overseas, said one Finance Ministry official responsible for budget policy, who asked not to be named.
Asian Currencies Decline on Japan Export Slump, Europe Outlook
Asian currencies weakened as the sharpest decline in Japanese exports in more than a year heightened concern that Europe’s debt crisis is sapping demand for regional goods.
Thailand’s baht slipped for a third day and South Korea’s won retreated from near a one-year high after data today showed shipments from Japan contracted 10.3 percent in September from a year earlier. Asian equities fell after European leaders attending an Oct. 18-19 summit in Brussels failed to provide clarity on financial aid for Spain, while Prime Minister Mariano Rajoysaid he doesn’t feel under any pressure to seek a bailout.
“Japan’s export numbers add to the gloom,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “The market is going to be rather wobbly.”
The baht fell 0.1 percent to 30.75 per dollar as of 3:33 p.m. in Bangkok, according to data compiled by Bloomberg. The won weakened 0.1 percent to 1,104.25, Taiwan’s dollar dropped 0.1 percent to NT$29.320 and Indonesia’s rupiah declined for a third day, losing 0.1 percent to 9,600.
The drop in Japanese exports was the steepest since May 2011 and was bigger than the median forecast in a Bloomberg News survey of economists for a 9.9 percent decline. Thailand reports overseas sales data this week, while South Korea is due to release third-quarter gross domestic product numbers and the Philippines will review interest rates.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s most-active currencies, was little changed. Its 60-day historical volatility fell to 2.34 percent from 2.37 percent on Oct. 19. The MSCI Asia Pacific Index (MXAPJ) of shares dropped 0.3 percent, following a 1.7 percent slide in the S&P 500 Index of U.S. stocks on Oct. 19 that was the biggest in four months.
“With disappointments over the European summit, and U.S. stocks falling on weak housing data, the won is facing downward pressure,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul. There is “resistance” to won strength after the currency touched 1,102.50 per dollar on Oct. 17, the highest level since October 2011, she said.
The baht dropped before a government report on Oct. 24 that may show Thai exports contracted 3 percent in September from a year earlier, a fourth monthly decline, according to a Bloomberg News survey of economists. Official data on Oct. 19 showed foreign direct investment in China shrank for a fourth month.
Elsewhere, China’s yuan was little changed at 6.2547 per dollar. Malaysia’s ringgit and the Philippine peso were steady at 3.0548 and 41.397, respectively. Vietnam’s dong fell 0.1 percent to 20,853, while India’s rupee gained 0.3 percent to 53.6637.