Exchange Rate Hits Intraday High... Impact of China Risk and 4th Wave Pandemic (Comprehensive)

[Image source=Yonhap News]

[Asia Economy Reporter Eunbyeol Kim] The won-dollar exchange rate reversed its decline in just one day and rose to the mid-1150 won range. This is due to the significant drop in the Chinese financial market following regulatory measures against China's big tech companies, causing investors to avoid risk assets. Additionally, the continuous increase in COVID-19 cases domestically is also a factor weakening the value of the won.

On the 28th, in the Seoul foreign exchange market, the won-dollar exchange rate started trading at 1,154.4 won, up 4.3 won from the previous day's closing price, and as of 10:30 a.m., it was trading in the high 1,153 won range. Early in the session, it rose to 1,155.5 won, marking the highest level since the intraday high of 1,158.8 won on October 8 last year.

The rise in the won-dollar exchange rate is analyzed to be due to the spread of safe-haven asset preference amid the regulatory risk impact from China. The Chinese Communist Party announced strong measures to regulate private education, causing a significant drop in the Chinese financial market. Concerns are growing that strong regulations by Chinese authorities may spread further, negatively affecting investor sentiment toward the won. Not only Chinese online education companies but also big tech companies listed in the U.S., including Alibaba, saw their stock prices plunge. Recently, the won's value tends to show a strong correlation with the yuan's value.

Yoon Yeosam, a researcher at Meritz Securities, stated, "The won tends to move in the same direction as the yuan, so it is expected to be partially affected." If the yuan depreciates, the possibility of foreign capital outflow from South Korea cannot be ruled out. Yoon added, "If events such as the bankruptcy of large Chinese companies occur, unstable movements may be observed mainly in the stock market." However, he noted that foreign capital inflow into the bond market remains strong. Min Kyungwon, a researcher at Woori Bank, analyzed, "There are concerns that foreign capital outflow from Asian stock markets may expand due to Chinese government regulations," adding, "As the yuan shows a clear weakness, downward pressure on Asian currencies including the won may increase."

The continuous rise in domestic COVID-19 cases is also exerting downward pressure on the won. The prolonged fourth wave has raised concerns that Korea's economic recovery may not be as clear as expected. However, the steady recovery in Korea's exports is a factor preventing the exchange rate from rising further. Researcher Min forecasted, "Dollar sales by exporters at the end of the month and the inflow of orders in heavy industries will offset the upward pressure on the exchange rate."

This content was produced with the assistance of AI translation services.