The Korean won strengthened sharply against the US dollar over 17 trading days, with the KRW-USD exchange rate falling from an intraday high of 1,559.20 won on the 1st to 1,465.10 won, despite rising dollar index and USD-JPY rates. Market analysts attribute this divergence to a renewed correlation between the won and Chinese yuan, replacing the won's historical coupling with the yen. The shift reflects domestic supply factors including SK Hynix's $26.5 billion ADR proceeds conversion and sustained exporter dollar sales, combined with China's economic resilience limiting yuan weakness.
KRW-USD Falls 94.10 Won While USD-JPY Rises to 164 Yen
According to Yonhap Infomax dollar-won transaction data, the KRW-USD exchange rate rose to an intraday high of 1,559.20 won on the 1st of the month before declining to 1,465.10 won over 17 trading days. The gap between the intraday high and low over approximately three weeks reached 94.10 won.
During the same period, USD-JPY rose from around the 160 yen level to just below the 164 yen mark. The dollar index also climbed above the 101 level, reaching its highest point in three weeks.
While dollar strength and yen weakness have historically exerted upward pressure on KRW-USD, the won has moved in a distinctly opposite direction from the yen this month. A foreign exchange dealer at a bank stated that USD-JPY breaking through the 163 yen level and rising by more than 1 big figure appeared to have no impact on KRW-USD. The dealer noted that while the won and yen previously showed coupling, they are now moving in completely different directions.
Won-Yuan Correlation Reaches 0.67 as Won-Yen Correlation Turns Negative
According to combined daily data from Seoul and New York trading sessions, the offshore USD-CNY exchange rate declined from 6.8031 yuan on the 7th to 6.7777 yuan, a decrease of 0.0254 yuan or approximately 0.4%. KRW-USD also fell from 1,515.80 won to 1,474.20 won during the same period, dropping 41.60 won or approximately 2.7%.
Analysis of daily levels for the three exchange rates from the 1st to the previous day revealed a correlation coefficient of 0.67 between KRW-USD and USD-CNY. In contrast, the correlation coefficient between KRW-USD and USD-JPY was negative 0.61, indicating a clear tendency for the two rates to move in opposite directions.
A foreign exchange dealer explained that the July chart shows KRW-USD moving quite similarly to the yuan's trend, following the yuan rather than the yen or dollar index when viewing the entire month.
However, within the same downward trend, the decline in KRW-USD has been notably more pronounced than USD-CNY. Analysts suggest that domestic supply factors have amplified downward pressure on KRW-USD alongside the yuan's strengthening trend.
SK Hynix Converts $26.5 Billion ADR Proceeds Amid Exporter Dollar Sales
SK Hynix has been converting funds totaling $26.5 billion secured through its American Depositary Receipt (ADR) listing, while other export companies continue selling dollars. Following the foreign exchange authorities' strong commitment to market stabilization, shipbuilders' forward exchange sales have also contributed to easing supply imbalances.
The subsiding of foreign investors' selling pressure on domestic stocks, which was a major driver of KRW-USD appreciation in the first half, has reduced dollar buying pressure associated with equity fund outflows.
China Q2 GDP Growth Slows to 4.3% While Exports Surge 20.2%
China's economic conditions and policy expectations are also acting as factors limiting yuan weakness. China's second-quarter growth rate was 4.3%, slower than the first quarter's 5.0%, but exports increased 20.2% compared to the same period last year. Market expectations continue that the Chinese government will strengthen infrastructure investment and domestic demand stimulus in the second half.
A foreign exchange market participant stated that while the won has recently moved in a similar direction to the yuan rather than the yen, domestic supply factors should be seen as amplifying won strength. The participant added that if such supply factors weaken, there is a possibility that KRW-USD could again become sensitive to global dollar or yen movements.
FAQ
What caused the Korean won to strengthen against the dollar despite rising USD-JPY rates?
The won's strengthening resulted from increased correlation with the Chinese yuan (correlation coefficient of 0.67) and domestic supply factors including SK Hynix's conversion of $26.5 billion in ADR proceeds and sustained dollar sales by export companies.
How much did the KRW-USD exchange rate fall over the 17 trading days?
The KRW-USD exchange rate declined from an intraday high of 1,559.20 won on the 1st of the month to 1,465.10 won, representing a gap of 94.10 won between the intraday high and low over approximately three weeks.
