South Korean Won: Strong exports and BoK stance back gradual KRW gains – Commerzbank

Commerzbank highlights that South Korea’s export boom and a large trade surplus, combined with a hawkish Bank of Korea, are supportive for the Korean Won. They argue that changing FX flow dynamics should allow more of the surplus to translate into KRW strength. After a sharp USD/KRW drop from 1,550, they now expect more gradual appreciation within a defined range.

Export surplus underpins Won outlook

"South Korea's exports surged 68.7% yoy in August (consensus: 62.6%), picking up from an already firm 63.0% in July and extending the expansion to a 15th consecutive month. The strength remained overwhelmingly technology-led, semiconductor exports jumped 209% yoy to USD46.7bn and computer exports rose 420%."

"The data reinforce the picture of an exceptionally strong semiconductor-driven external cycle and support the Bank of Korea’s (BoK) recent upgrade to its 2026 GDP growth forecast to 3.3% from 2.6% previously in August."

"Headline CPI inflation rose to 3.1% yoy (consensus: 3.2%) from 2.8% in July. The increase was widely anticipated in part because of base effects from last year's temporary reduction in telecom charges, so the below-consensus print is somewhat reassuring."

"After the sharp decline from around 1,550 at the start of July, we expect further KRW appreciation to be more gradual and look for USD/KRW to consolidate between 1,360–1,400 in the near term."

"For KRW, there are supportive factors, including exceptionally strong exports, a very large trade surplus, and a hawkish BoK. The August trade surplus of almost USD35bn further strengthens Korea's external position. Importantly, recent changes in FX flows, including corporate repatriation and increased National Pension Service (NPS) hedging, mean more of this external surplus can translate into KRW strength than before."

"After the back-to-back 25bp rate hikes in July and August, BoK is expected to stay on hold in October. BoK is forecasting headline CPI at 2.7% in 2026 and 2.3% in 2027, with core inflation at 2.5% in both years."

"However, it is unlikely to alter BoK’s tightening tone, given that inflation is still well above BoK's 2% target, while export growth and overall activity remain exceptionally strong. Core inflation, which excludes agriculture products and oil, climbed to 3.1% vs 2.5% previously, partly on the low base."