TD Securities has adopted a bearish outlook on the South Korean Won (KRW), forecasting that the USD/KRW currency pair is likely to find support around the 1,400 level as the previous strength of the KRW diminishes [1]. The firm has initiated short KRW positions against both the US Dollar and Japanese Yen through non-deliverable forwards (NDFs), citing factors such as stretched valuation, waning bullish momentum, and a negative correlation to AI equities [1].
According to TD Securities, the KRW is considered 'broadly rich' compared to global currencies, including the USD and JPY, following its recent rally. The analysts note that bullish momentum in the KRW is fading, and with AI equity sentiment stabilizing after the second quarter US earnings season, there is potential for the KRW to retrace some of its recent gains [1]. The firm has reflected this view by entering short KRW trades in its model portfolio [1].
TD Securities also highlights that the main risk to this bearish trade is the possibility of unhedged foreign inflows into Korean equities and Korean corporate repatriation. Such developments could lead the KRW to outperform both the USD and JPY over the next three months, despite the current bearish stance [1].
CONCLUSION
TD Securities' shift to a bearish view on the Korean Won is driven by fading momentum and valuation concerns, with a key support level identified at 1,400 for USD/KRW. However, the outlook is tempered by the risk of unhedged foreign inflows, which could strengthen the KRW unexpectedly. Market participants should monitor equity flows and corporate repatriation trends as potential catalysts for KRW performance.