Won falls on concern BOK will sell, Taiwan dollar rises
Won falls on concern BOK will sell, Taiwan dollar rises
Yumi Kuramitsu, Bloomberg/Singapore
South Korea's won fell from a seven- year high after a report said the government will sell a record amount of bonds this month to help curb the currency's gains.
The government will sell 5 trillion won (US$4.8 billion) of foreign-exchange stabilization bonds as part of 8.27 trillion won of sales this month, Internet news provider MoneyToday said yesterday. The won strengthened 15 percent last year against the dollar, the best performer among the 15 most actively traded currencies of Asia-Pacific region tracked by Bloomberg.
"They are issuing quite a huge amount and they are probably preparing for intervention," said Irene Cheung, Singapore-based head of Asia sovereign and currency strategy at ABN Amro Bank NV. "It shows that they are quite committed to foreign-exchange operations" to stem gains in the won.
The won fell 0.3 percent to close at 1,038.10 against the dollar at 4 p.m. local time, according to Seoul Money Brokerage Services Ltd. It closed at 1,035.1 on Dec. 31, the highest since Nov. 18, 1997. ABN expects the won to advance to 1,015 against the dollar in the first quarter, according to Cheung.
South Korean export growth slowed in December and companies and analysts predict the stronger won will damp the pace of shipments this year. Export expansion slowed to 20 percent from a revised 27 percent in November, the government said on Jan. 1.
The country relies on overseas sales, which account for about 40 percent of the economy, to drive growth as credit-card debt has forced local consumers to cut spending. A stronger won means it costs more for purchasers abroad to buy Korean goods.
The Taiwan dollar gained after the island's Taiex index rose for a fifth session, increasing the appeal of local assets.
Overseas fund managers were net buyers of Taiwan's equities for at least a fifth year in 2004, acquiring a net $9.2 billion of stocks. They bought a net $113 million today, according to the stock exchange data. Taiwan's central bank raised its benchmark interest rate on Dec. 30 and said more increases are likely, also making the island's currency more attractive.
"With interest-rate increases and a gain in stocks, the environment is for the Taiwan dollar to be under pressure to appreciate," said Noriyoshi Tsunoda, assistant general manager of the treasury department in Taipei at Mizuho Corporate Bank Ltd., a unit of Japan's biggest lender. The Taiwan dollar may strengthen to around NT$30 against the dollar by the end of June, he said.
Taiwan's dollar rose 0.2 percent to NT$31.845 against its U.S. counterpart, according to Taipei Forex Inc. The local dollar on Dec. 31 had its highest close since Oct. 12, 2000, and strengthened to NT$31.5 on an intraday basis, the highest since Oct. 26, 2000. The Taiex rose 2.6 percent over the past five sessions.
South Korea's Business confidence dropped to a three-year low in December as consumer spending slumped and a stronger won cooled exports, according to the Federation of Korean Industries, which represents the nation's biggest industrial groups.
Hyundai Motor Co., South Korea's largest automaker, said Dec. 1 domestic vehicle sales fell 1.1 percent from a year earlier in November while exports rose 27.5 percent.
The government last year spent 18.8 trillion won, helping limit gains in the currency, it said on Dec. 27.
"The MOF may want to have a big intervention this month," said Sam Hong, a currency derivatives department manager at Shinhan Bank in Seoul. The won may weaken to 1,043 against the dollar this week, he said.
Elsewhere in Asia, the Singapore dollar dropped 0.3 percent against its U.S. counterpart to S$1.6372 and the Thai baht weakened 0.2 percent to 39.00.