South Korean Won: Losses risks building toward 1400 against US Dollar – TD Securities

TD Securities strategists argue that USD/KRW’s roughly 14% decline from its June peak leaves the pair at the bottom of its two-year range. Historical mean-reversion patterns, overbought KRW valuation and fading equity inflows support a move higher in USD/KRW toward 1375 by year-end 2026 and 1400 in Q1 2027.

KRW rally seen losing momentum

"After a prolonged USD/KRW drawdown from the peak in June, history points to high likelihood of a near-term rebound. Current FX valuation and fading support from portfolio flows also reinforce the case for higher USD/KRW toward 1400."

"USD/KRW is at the bottom of its two-year range despite last week's KOSPI circuit breaker event. The pair is now down roughly 14% from its peak, placing the current decline among the largest drawdowns since 1999. Historically, drawdowns of a similar magnitude have been relatively rare."

"History points to a tendency for mean reversion. In the six prior instances since 1999 when USD/KRW experienced a drawdown of roughly -14% or more from a rolling 1y high, the pair generally went on to recover over the following 1-, 3- and 6-month horizons, suggesting that declines of this magnitude have often marked the start of the retracement. Across the three horizons, USD/KRW was consistently up 5 out of 6 times (83% up ratio)."

"Our high-frequency fair-value (HFFV) framework shows KRW is overbought and reinforces the view that USD/KRW should ultimately gravitate back toward short-term fair value now around 1400, in-line with historical magnitude of USD/KRW upside from the backrest and our official FX forecast (1375 for year-end '26 and 1400 for Q1 '27)."

"Investors who have turned more bullish USD should consider higher USD/KRW, where the USD positioning is likely still not long. We also see scope for KRW to weaken vs regional peers like JPY and CNY. JPY/KRW continues to trade near multi-decade low, while CNY is supported by FX settlements and upside data surprise in China."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)