By Vincent Mivelaz
The South Korean economy relies on its exports in order to grow, thus raising concerns as to imminent global trade war risk prompted by the US.
As South Korea key commercial partners China (35%), US (16%) and Japan (11%) are in the middle of the trade war conflict, the economy could potentially suffer due to its strong dependence from manufacturing exports and particularly in steel and machinery parts (e.g. automotive, electronics and ship industries), affecting the shipment of goods that would be drastically reduced.
However when looking at the bigger picture, we see the impact as rather subdued due to the Korea – US Free Trade Agreement signed on March 15 2012, making it the largest Free Trade Agreement signed by the US since NAFTA (signed in 1994) and thus confirming the importance of South Korea as a main trading partner for the US.
Following his re-appointment as Bank of Korea (BOK) governor earlier this month, Lee Je-Yeol also confirmed that South Korea is not classified as a currency manipulator vis-à-vis the US.
During his recent parliamentary hearing, Lee Ju-Yeol confirmed current accommodative stance supported by the BOK, monitoring the Fed’s decision impact on fund flows and confirming that it could raise interest rates if current growth pace is maintained during its next policy meeting in April 12th.
Amid Fed’s rate hike expectations later today, we are expecting the USD/KRW currently trading at 1072 to head higher along the 1075 range.
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