Korean Won Hits Yearly Low Against Dollar, Approaching 1300 Won

The won-dollar exchange rate has dropped to its lowest level of the year, bringing the 1300 won range into sight. While improvements in supply and a record-high current account surplus support the strength of the won, analysts suggest that new momentum is needed for further declines.

According to the Bank of Korea's Economic Statistics System (ECOS), the average won-dollar exchange rate as of August 14 was 1421.45 won, with last week's average falling to 1417.56 won, marking a yearly low.

Monthly average rates for this year have been as follows: January 1456.3 won, February 1448.9 won, March 1492.5 won, April 1485.0 won, May 1491.3 won, June 1527.9 won, and July 1489.4 won. After surpassing 1500 won in June, the rate has seen a rapid decline over the past two months.

Market attention is focused on whether the exchange rate will break through the 1400 won mark and enter the 1300 won range. The last time the won-dollar exchange rate was in the 1300 won range was on September 30 of last year, when it hit a low of 1399.3 won.

Since SK Hynix's American Depositary Receipts (ADR) listing, the exchange rate has remained in the 1400 won range for five consecutive weeks. The reduced demand from foreign investors for domestic stock market rebalancing following the ADR listing has also contributed to the strength of the won.

A key factor contributing to downward pressure on the exchange rate is the record-high current account surplus. According to the Bank of Korea, the cumulative current account surplus for the first half of this year reached $191.01 billion, nearly four times the $47.87 billion recorded during the same period last year. The Bank of Korea has indicated that the annual current account surplus could exceed the previously projected $250 billion, suggesting a continued dollar supply advantage in the foreign exchange market.

Market analysts estimate the short-term low for the won-dollar exchange rate to be around 1380 won. While a continued downward trend could allow for entry into the 1300 won range, further declines may be limited.

Choi Kang-hyun, a researcher at LS Securities, noted, "There is a high possibility of further declines, with some predicting it could drop below 1380 won. However, considering fundamental and supply-demand factors, new downward pressures will be necessary for significant declines below current levels."

In particular, increased dollar demand due to domestic investments abroad and direct investments in the U.S. are seen as factors supporting the lower limit of the exchange rate. The decision on whether the National Pension Service will extend its strategic currency hedging is also expected to be a key variable influencing future exchange rate declines.

Kwon Ah-min, a researcher at NH Investment & Securities, stated, "If the dollar supply advantage continues, there is a possibility of a decline to the high 1300 won range, but this is considered the lower limit for the year." He added, "This should be viewed as a temporary strength due to supply-demand factors rather than a fundamental shift towards a stronger won, as dollar demand from overseas investments and U.S. FDI, along with the National Pension Service's hedging decisions, are likely to limit the lower boundary of the exchange rate."