The worst might not be over for the won, Deutsche Bank AG said.
The South Korean currency, Asia’s worst performer this year, might keep slipping until it hits 1,200 against the US dollar as growth concerns and disappointment over the size of a supplementary budget sap confidence, said Choi Kyung-jin, head of fixed income and currencies at the bank in Seoul.
“In the short term, market sentiment is pretty bad — there is no confidence in the economy,” Choi said in an interview.
Markets would have to wait for the semiconductor industry to rebound, while the automobile and shipbuilding sectors remain sluggish, he added.
Bets that the Bank of Korea is to cut rates have increased after data last week showed that the economy unexpectedly shrank in the first quarter on falling exports and weak demand for semiconductors.
The won breached a key support level that day and has extended losses to trade at a more than two-year low.
The won fell 2.8 percent against the greenback last month. It was trading at 1,164.05 at 6:45pm in Seoul yesterday.
Yields on the three-year bond have dropped 39 basis points from a high in October last year to 1.695 percent, hovering below the Bank of Korea’s 1.75 percent policy rate.
A rate cut could come as early as July, although the central bank could wait until the fourth quarter to better assess the growth momentum, Choi said, expressing a personal view.
Deutsche Bank’s official call is for the central bank to hold rates this year.
Given the balance for risk and rewards, investors might want to hold back on buying more bonds until at least next month, he said.
There are signs that the export slump is bottoming out. Shipments last month fell 2 percent by value from a year earlier, better than the 5.9 percent decline expected.
Meanwhile, Samsung Electronics Co on Tuesday joined rivals in predicting a rebound in semiconductor prices in the second half.
Bank of Korea Governor Lee Ju-yeol on Wednesday said that the economy is expected to improve in the second quarter, and that the central bank is not considering a rate cut at the moment.
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