South Korean Won: Equity strength fails to lift KRW against US Dollar – OCBC

OCBC’s Sim Moh Siong and Christopher Wong note a sharp divergence between Korean equities and the Korean Won (KRW), with KOSPI’s strong semiconductor-led rally not translating into KRW gains. Heavy foreign USD futures buying and prior overseas equity flows have supported USD/KRW. The bank remains cautious, watching broader USD direction and whether futures demand persists before KRW can stabilise.

USD futures flows drive USD/KRW

"KRW weakened sharply despite a strong rebound in Korean equities. KOSPI surged 6.6%, led by semiconductor stocks, with foreign investors returning as net buyers. Yet USD/KRW rose 14 won to 1337.7 at the Seoul close and extended its move higher into 1344 intra-day higher overnight."

"The equity-FX divergence is striking, particularly given the improving sentiment towards the AI trade. Foreign investors reportedly net purchased a record 144,300 USD futures contracts (approximately USD1.44bn notional), according to Yonhap Infomax. Market chatters pointed to USD short covering and potential FX hedging demand as foreign investors’ Korean equity exposure increased."

"Concerns over prospective dividend repatriation following a large Korean corporate shareholder return announcement may also have contributed. The sizeable USD futures buying suggests these flows may have outweighed support from equity inflows. This also serves as a reminder that stronger Korean equities do not necessarily translate into KRW appreciation."

"USD/KRW rebounded, in line with our caution that recent price action displayed fatigue for KRW bulls. Spot last at 1341 levels. Daily momentum turned mild bullish while RSI rose. Further short squeeze not ruled out as we favour fading this rebound. Resistance at 1348, 1354 (50 DMA). Support at 1332, 1321 (recent low)."

"In 1H26, resident purchases of overseas equities were a significant source of USD demand, although the flow dynamics this time appear different. Near term, we remain cautious about extrapolating from a single session. Broader USD direction and whether the foreign USD futures purchases persists will be important in determining if KRW can regain its footing."

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