"Exchange Rate to Fall Further": Korea Investment & Securities Lowers H2 Dollar-Won Forecast from 1,470 to 1,420 Won

Average Dollar-Won Exchange Rate Forecast Lowered for Second Half

Appropriate Daily Range Suggested at "1,340–1,520 Won"

Korea Investment & Securities has revised its average dollar-won exchange rate forecast for the second half of the year downward from 1,470 won to 1,420 won. The daily low range was also lowered to 1,340 won per dollar.

On August 20, Korea Investment & Securities stated in its 'Exchange Rate Outlook Update,' "Since the key psychological level of 1,400 won has been breached, the downward momentum for the dollar-won exchange rate is expected to continue in the short term." After once approaching the 1,600 won mark, the dollar-won exchange rate has plunged sharply since July, closing at 1,397.7 won per dollar as of the previous trading day.

Moon Daun, a researcher at Korea Investment & Securities, explained, "Despite the sustained strength of the U.S. dollar, the exchange rate has fallen by more than 150 won purely on domestic supply and demand factors," adding, "With strong demand for Korean won financing driven by interim corporate tax prepayments and domestic investments, the drop widened further as the dollar index declined slightly."

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Consequently, Korea Investment & Securities has lowered its average dollar-won exchange rate forecast for the second half of the year from 1,470 won to 1,420 won, projecting 1,430 won for the third quarter and 1,410 won for the fourth quarter. Researcher Moon noted, "The reason the Q3 average still looks somewhat high is that the accumulated average for Q3 (from July 1 to August 19) stands at 1,463 won so far," adding, "Looking at the monthly path, we anticipate a sharp decline in August followed by a sideways trend in Q4."

For the appropriate daily range through the end of the year, the company forecast 1,340–1,520 won per dollar, compared to the previous range of 1,410–1,560 won. Researcher Moon stated, "The closer the rate approaches the lower bound, the stronger the upward pressure from dollar buyers will become, while approaching the upper bound will prompt a stronger downward push from dollar sellers. The key assumption is that, as is currently the case, stable dollar liquidity continues to be supplied with enough strength to offset foreign selling of domestic stocks centered around semiconductor companies, and that the dollar index continues to decline."

He added, "Domestically, a clear inflection point for exchange rate declines has formed, beginning with dollar sales related to SK hynix's U.S. American Depositary Receipt (ADR) proceeds in July and increasing dollar sales by major exporters, accompanied by a higher proportion of currency hedging. As the exchange rate falls, it further accelerates dollar selling and raises the proportion of hedging, resulting in a chain reaction that further drives the won higher."

However, there remains a high level of uncertainty stemming from factors such as how the war between the United States and Iran unfolds and global oil prices. In addition, this outlook is premised on the U.S. Federal Reserve maintaining its policy rate at the current level from a macroeconomic perspective. Researcher Moon projected, "As market expectations for a rate hike are reversed, we expect the dollar index to decline gradually from around 99 to the 96–97 range," and estimated, "Even ignoring the supply-demand balance and simply reflecting the drop in the dollar index, the lower bound for the dollar-won rate could be extended to 1,360 won."

He also evaluated the strong semiconductor industry performance in the second half as a test of whether it could suppress any unprecedented upward move in the exchange rate, noting that this would ultimately decide the outlook for next year's exchange rate as well.

Researcher Moon predicted, "If the exchange rate settles comfortably in the mid-1,300 won range, or if it drops further below our forecast, residents' strong expectations for a rising exchange rate that have persisted for the past three to four years could be reversed. If the expectation for a weaker won becomes solidified, the exchange rate could continue to stabilize in a downward trend even into next year." Korea Investment & Securities plans to release its exchange rate outlook for next year in its '2027 Annual Outlook,' which will be published in November.

This content was produced with the assistance of AI translation services.