As threat of war with Kim abates, South Korea's won raring to go in 2018

South Korea's currency strengthened almost 13% in 2017, its best annual performance since 2004

North and South Korea, North and South Korea flags, North Korea, South Korea — Flags of North and South Korea. (Photo: Shutterstock)

Last Updated : Jan 03 2018 | 4:40 PM IST

The threat of war may not be out of the picture but Asia’s top-performing currency is still seen as raring to go in 2018.

Bets are on for South Korea’s won to climb past any weakness as the risk of a conflict eases after Pyongyang called for talks with its southern neighbour, notwithstanding the current standoff with the US, according to Kiwoom Securities Co. The won will be supported by rising demand for South Korean technology exports, quickening economic growth and increased odds of further policy tightening, said Christopher Wong, senior currency strategist at Malayan Banking Bhd in Singapore.

“The North Korea risk should now be considered a neutral variable whereas it was seen as a factor” that weakened the won in the past, said Kim Yumi, a market strategist at Kiwoom Securities in Seoul. “Investors can set aside the North Korea risk for now and focus on trends in the dollar and euro.”

Dollar-won is set to break below a major monthly trendline that began at the start of the global financial crisis in late 2007. On Tuesday, the won vaulted to its strongest level since October 2014, defying warnings the rally may be overdone. It slipped half a per cent Wednesday to 1,066.35 per dollar on concerns the government may intervene.

As Pyongyang’s olive branch doesn’t extend to the US, won bulls may have to put up with more exchanges between the two nations this year. President Donald Trump was quick to tweet he has a “much bigger and more powerful” nuclear button after North Korean leader Kim Jong Un reminded the US it could strike with a nuclear bomb if necessary.

South Korea’s currency strengthened almost 13 per cent in 2017, its best annual performance since 2004. The gains are even more impressive when one takes into account the slew of North Korean provocation throughout the year, including missile tests and posturing, as well as Trump’s combative retorts.