Dollar-Won Gives Up Intraday Gains, Slips Back to the Mid-1,330 Won Level
The dollar-won exchange rate gave up all of its intraday gains and slipped to the low-to-mid 1,330 won level, closing lower for a second consecutive day. In the Seoul foreign exchange market on the 30th, the dollar-won was trading at 1,334.30 won as of 3:30 p.m., down 2.50 won from the previous session. After opening at 1,338.50 won, the pair rose to 1,340.50 won early in the session on custodian-related dollar buying, but the momentum reversed after a selling sidecar was triggered on the KOSPI around 10:04 a.m. The rate fell to an intraday low of 1,333.60 won at around 3:20 p.m., with the intraday trading range reaching 6.90 won.
Won strength continued as exporters' negotiated dollar sales, foreigners' net selling of dollar futures, and a weak Kospi coincided. Foreigners net sold more than 1.6 trillion won worth of stocks on the KOSPI and also sold nearly 20,000 dollar futures contracts in the currency futures market, supporting the won's gains. The Kospi closed down 3.48% at 5,730.74, while the Kosdaq fell 3.83% to 724.38.
The recent movement of the Kospi and the exchange rate in the same direction is attributed to adjustments in foreign investors' currency hedge positions. An investor maintaining a set hedge ratio increases dollar non-deliverable forward (NDF) purchases when the value of their won-denominated assets rises with stock prices, and scales back existing dollar hedge positions when asset values decline. This process causes stock prices and the exchange rate to move in tandem.
Foreign exchange dealers remain wary of moves in both directions, though many see limited upward pressure on the rate. "Despite the rate's decline, there were more dollar offers than usual, perhaps because companies feared further declines," one bank dealer said. Another dealer noted, "The stock market fell and foreigners sold dollar futures as well, leading to an offer-heavy market."
Spot exchange trading volume totaled 11.54 billion dollars, combining the Seoul Forex and the Korea Money Brokerage. The market average rate (MAR) was quoted at 1,337.20 won.
In regional currency markets, the Bank of Japan held its uncollateralized overnight call rate at 1.25% at its policy meeting on the day, as widely expected. The dollar-yen rate briefly fell to the 157.1 yen level after the announcement before recovering to the 157.5 yen level, and was trading at 157.705 yen, up 0.044 yen from the New York session at the same time. The People's Bank of China set a stronger yuan fixing, with the dollar-yuan central parity rate falling 0.0009 yuan from the previous session to 6.7138 yuan.
According to third-quarter foreign exchange trends released by the Bank of Korea, daily average foreign exchange trading volume, including spot and derivatives transactions, reached 122.01 billion dollars, the largest quarterly figure on record since statistics began in 2008. The average daily percentage change in the exchange rate narrowed to 0.46% in the third quarter from 0.52% in the second quarter.
