Asia FX Talking: Large export flows yet to help North Asian FX
The desk believes that North Asian currencies are currently grappling with the disconnect between strong export flows and FX performance, as highlighted in the latest commentary. Despite large export volumes, currencies like the Korean won (USD/KRW) and the Taiwanese dollar (TWD) have not benefited accordingly, primarily due to market dynamics and intervention fatigue. Per the full note source, the Korean authorities have intervened significantly, yet volatility remains high amidst massive foreign equity outflows. This lack of robust currency appreciation against the backdrop of favorable trade balances suggests a complicated market environment, further complicated by a hawkish U.S. Federal Reserve and softer Chinese growth expectations triggering a weaker yuan.
What the desk is arguing
The desk posits that North Asian currencies, particularly the Korean won and yuan, should be capitalizing on strong export flows but are not, due to significant market volatility and a constrained FX regime. Per the full note source, while the trade data appears supportive, the realities of capital outflows and external pressures are limiting their appreciation.
The commentary points to specific volatility metrics, with USD/KRW described as having 'by far, the highest volatility in the region.' This high volatility is exacerbated by a net $102 billion in foreign equity sales in Korea, challenging local authorities' interventions of $13.6 billion in the first quarter alone.
Where it sits in our coverage
Our current estimates place the USD/KRW at 1497.00, with a consensus forecast of 1450.00 (Dec-26) from Goldman and Citi. Notably, JPMorgan forecasts a target of 1515.00 for the medium term, positioning us towards the upper bound of the consensus range.
This outlook aligns with prevailing sentiment regarding USD/KRW, where conditions are expected to foster a mildly bullish view. Notably, this stance comes amid a backdrop of rising intervention as authorities attempt to stabilize the currency amidst outflows, marking diverging perspectives on market strength.
How other firms see it
Several firms, including Goldman, Scotiabank, and HSBC, maintain a bullish outlook on the USD/KRW, anticipating upside throughout 2026 due to ongoing currency interventions. In contrast, firms such as Citi and JPMorgan indicate a more cautious approach, hinting at potential downside volatility driven by external factors.
The sentiment surrounding USD/KRW is crucial, as it interlinks with broader trends in the AUD, and sectoral shifts indicated by trade policies and export performance. Thus, our focus on specific currency flow patterns is vital at this juncture.
What the calendar says
No significant calendar events are anticipated in the coming weeks that would impact North Asian FX markets or related currency pairs. However, traders should remain observant of external data, especially relating to Fed policy or China's economic health, for emerging cues regarding regional outlooks.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01North Asian currencies are underperforming despite large export flows due to market volatility.
- 02The Korean won experiences the highest volatility in the region amidst significant foreign equity outflows.
- 03Monetary authorities are struggling with interventions, as seen by $13.6 billion injected in Q1.
- 04The Fed's hawkish stance continues to weigh heavily on regional currency performance.
Market implications
Traders should monitor the USD/KRW level closely around 1497.00 and be alert for any shifts in the intervention policy by Korean authorities, as fluctuations here could significantly impact market sentiment. Additionally, watch for external economic data linked to U.S. Fed statements that could influence rates and capital flows.
Risks to this view
The primary risks to this outlook include sudden escalations in foreign capital outflows that could intensify market volatility. A change in the Fed's stance leading to a less hawkish tone could also ease pressures on North Asian currencies, potentially reversing the bearish dynamics.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Neutral | 1.1450 |
Citi | Bearish | 1.1000 |
MUFG | Bullish | 1.1800 |
Articles Asia FX Talking: Large export flows yet to help North Asian FX Published 13:02 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Trade data continues to suggest that North Asian currencies should be enjoying the benefits of large export flows. That is not the case yet for Korea and Taiwan, while China's FX regime remains well controlled. Expect authorities to continue efforts to support local currencies – efforts which could prove successful if the dollar turns later this year Deepali Bhargava and Lynn Song The yuan has softened as markets price in a more hawkish Fed and weaker Chinese growth USD/CNY: Narrowing our fluctuation band for 2H26 Spot One month bias 1M 3M 6M 12M USD/CNY 6.7816 Neutral 6.77 6.75 6.70 6.65 The Chinese yuan weakened slightly against the dollar over the past month, bouncing from a low of 6.75 to around 6.80 as markets priced in a more hawkish Fed and softer Chinese growth.
The People’s Bank of China’s countercyclical factor is now neutral, signalling no intention to facilitate depreciation after this month’s pullback. Yield spreads widened, but the correlation has weakened this year. Continued current account surpluses and exporter conversions remain the main theme for the CNY.
We see rising odds for a 3Q PBoC rate cut, but it shouldn’t halt appreciation. We’ve updated our fluctuation band forecast to 6.67-6.92 for the rest of 2026, and keep our 6.70 year-end target unchanged. USD/KRW: Korean authorities struggle with volatility Spot One month bias 1M 3M 6M 12M USD/KRW 1497.00 Mildly Bullish 1515.00 1500.00 1475.00 1450.00 USD/KRW trades with, by far, the highest volatility in the region.
That probably reflects the huge swings in the tech-driven Kospi equity index and the enormous flows behind them. Foreigners have sold a net $102bn of Korean equities this year, while local authorities have struggled to keep up, conducting $13.6bn of intervention in 1Q. Korean authorities might start to find that macro is on their side, however.
A Bank of Korea rate hike to 2.75% looks likely on 16 July and the market expects the policy rate at 3.50% next year. Ongoing inflows into the won from Hynix’s $25bn ADR issue, plus the WGBI index inclusion (April-November 26) should help. USD/INR: Return of foreign inflows supportive of INR Spot One month bias 1M 3M 6M 12M USD/INR 95.65 Neutral 95.25 94.50 94.00 94.00 India’s rupee has staged a modest recovery, helped by improved foreign demand for local bonds.
India has boosted its investor appeal by removing capital gains tax and withholding tax on interest from government securities. We remain relatively constructive on INR, supported by recent measures to attract FCNR deposits and the possibility of bond index inclusion, which should help improve capital inflows and narrow the balance-of-payments gap in 2026. This should be underpinned by solid growth, driven by a strong consumer recovery and healthy industrial and export performance.
Sources & References
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