South Korean Won Recovers as Oil Prices Retreat

The South Korean won rose to around 1,338 per dollar on Tuesday, recovering from losses in the previous session as falling oil prices eased energy-related pressures. Brent crude fell to around $105 per barrel after Iran's Supreme Leader Mojtaba Khamenei approved the government's pursuit of peace talks, easing concerns over supply disruptions. However, gains remained constrained by continued foreign equity outflows and concerns over the profitability of massive artificial intelligence infrastructure investments, which have kept foreign flows into technology-heavy Asian markets fragile. Meanwhile, the US dollar index steadied around 101.8 as investors remained cautious ahead of the US midterm elections and this week's economic data. Domestically, South Korea's inflation eased to 2.8% in October from 2.9% in September. Persistent price pressures, partly reflecting a 14.9% increase in petroleum product prices, reinforced the case for maintaining a restrictive monetary policy stance.

The South Korean won traded around 1,345 per dollar, reversing recent gains amid persistent demand for overseas assets and foreign equity outflows. South Korean residents' growing investment in foreign securities has become a structural source of dollar demand, as net purchases of overseas securities rose 71.5% month-on-month to $7.09 billion in October, weakening the traditional link between trade surpluses and won appreciation. Additionally, resident foreign-currency deposits reached a record $154.7 billion in September, up $14 billion from the previous month, reflecting increased exporter dollar receipts and funds held for overseas bond investments. Meanwhile, strong export performance and exporter dollar conversions continue to provide support, with October exports surging 93.7% year-on-year to a record $115.3 billion, led by a 259% jump in semiconductor shipments to $56.4 billion.

The South Korean won strengthened to around 1,336 per dollar, extending gains for another session as broad-based gains in Asian currencies and a weaker US dollar lifted the currency. The greenback weakened for a third consecutive session as Treasury yields declined amid a global sell-off in AI stocks. Meanwhile, market sentiment was also supported by signs of stronger domestic economic activity, as South Korea's daily FX turnover reached a record USD 122.01 billion in the third quarter, reflecting robust export-related transactions. Tax revenue also rose KRW 26.4 trillion year-on-year in September, driven by improved corporate earnings among semiconductor manufacturers. However, elevated oil prices, with Brent crude rising to around USD 116 a barrel, continued to pose risks for South Korea's energy-import-dependent economy.