(Bloomberg) — South Korea’s won is far from bottoming out after falling to a 17-month low on Thursday, as pressure on the currency is seen growing with projections for oil to reach $100 a barrel.
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The won slumped as much as 0.7% to 1,364.85 per dollar, the weakest since November 2022, after rising US inflation bolstered the greenback and China’s stalling consumer prices revived concerns over sluggish growth in South Korea’s largest trading partner. South Korean President Yoon Suk Yeol’s major defeat in parliamentary elections also weighed on sentiment.
HI Investment & Securities forecasts the won dropping to as low as 1,400 per dollar this year should crude prices reach $100 a barrel. “I’m closely watching oil prices these days,” said Park Sang-hyun, an economist at the firm, adding that “as a country that is vulnerable to commodity prices, rising oil prices pose a threat more than anything.”
The won has already fallen more than 1% so far in April to the bottom of Asia’s currency rankings. A bumper dividend payout this month by local firms to foreign investors is seen adding pressure on the currency. Technical analysis shows next support level for the won at 1,400 per dollar.
The oil rally could cause a double impact on the won as it backs the strong dollar trend by stimulating global inflation, and it could also spur local importers to buy more greenback to purchase materials, according to Park Sooyeon, an economist at Meritz Securities. She expects the won to weaken to as low as 1,370 per dollar, with dividend payments also contributing to its drop.
South Korea imports most of its energy needs, including oil and natural gas, making it vulnerable to rising global commodities prices.
Brent futures traded above $90, while West Texas Intermediate was near $86 as traders watched for a potential attack on Israel by Iran or its proxies, which could worsen tensions in the Middle East. Oil is up almost 18% this year as geopolitical tensions combine with OPEC+ supply cuts to drive prices higher. Some are already seeing the possibility for oil to return to $100.
–With assistance from David Finnerty and Heesu Lee.
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