(Bloomberg) — The Korean won’s near 17% rally since late October may be reaching its final stages as signs of a weaker economic outlook contrast with optimism over other emerging-market peers.
Falling demand for semi-conductors is set to weigh on exports at a time when alarm bells are sounding about South Korea losing a global chip war. The focus will be on fourth-quarter growth data due Jan. 26 after the Bank of Korea chief suggested last week economic concerns are surfacing, raising speculation the tightening cycle is winding down.
Along with other headwinds such as the current account deficit and technical factors, this doesn’t leave much scope for the won to gain and primes investors for a potential shift to other currencies such as the Thai baht. The Korean currency was the best performer in Asia in the fourth quarter.
Read: Global Inflows Amid China Reopening Put Baht in a Sweet Spot
While the Korean currency may benefit from the Chinese economy picking up, sluggish exports are going to drag on the won, said Min Joo Kang, an economist at ING Bank NV. “For the near-term, probably appreciation elements will drive a stronger USD/KRW,” she said.
Exports fell almost 10% in December, with the chip-making giant reporting its first annual trade deficit since 2008. In addition, Min expects Korea to post a current-account gap this quarter, putting more pressure on the won.
ING sees the won ending the quarter at 1,230 versus the dollar, compared with 1,235.55 on Friday.
The won has strengthened, along with emerging-market peers, from late October on signs the Federal Reserve may be nearing its terminal rate with US inflation slowing. Rising equity inflows amid improving risk sentiment aided by China’s re-opening also helped.
Risk Sentiment
However, these stock inflows may moderate, or even turn into outflows if risk sentiment deteriorates further on weaker US earnings or rising economic concerns. Other than weaker exports, Korea is also struggling with a property-market downturn.
Other positives for the won may be fading as Bank of Korea seems to have either reached, or be nearing the end of its rate hike cycle. After the BOK has raised its rate by 300 basis points in 18 months, Governor Rhee Chang-yong said policymakers should now consider the impact on the economy and financial stability.
The won’s rally has left it in overbought territory according to slow stochastics, a momentum indicator. Fibonacci support at 1,219, the 61.8% retracement of its January 2021 to October 2022 rally, presents a big hurdle.
“There is room for more won strength during the remainder of the first quarter, but given how fast the currency has gained recently, the scope of the rally won’t be too big,” said An Young-jin, an economist at SK Securities Co., who sees USD/KRW at 1,220 at the end of March.
Here are the key Asian economic data due this week:
Monday, Jan. 23: BOJ minutes to December meeting
Tuesday, Jan. 24: Australia business confidence, New Zealand performance services index, Japan PMIs, Thailand customs trade balance
Wednesday, Jan. 25: Australia 4Q CPI, New Zealand 4Q CPI, Bank of Thailand policy decision, Singapore CPI
Thursday, Jan. 26: BOJ summary of opinions to January meeting, South Korea 4Q GDP Philippine trade balance and 4Q GDP, Singapore industrial production
Friday, Jan. 27: Australia 4Q PPI, New Zealand business confidence, South Korea business surveys, Tokyo CPI
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
