USD/KRW: South Korean won gains on mixed manufacturing and retail sales data

USD/KRW: South Korean won gains on mixed manufacturing and retail sales data
  • The USD/KRW declined again today as traders reacted to the mixed economic data from South Korea.
  • The numbers showed that industrial production declined by 9.6% in May while manufacturing BSI index rose.
  • South Korea's retail sales rose by 4.6% in May after rising by 5.3% in the previous month.

The USD/KRW is down for the second straight day as investors react to the rising coronavirus cases in the US and the mixed economic data from South Korea. The pair is trading at 1196.80, down from this month’s high of 1243.80.

USD/KRW
USD/KRW 30-minute chart

South Korean economy lagged in May

South Korea has been lauded for its reaction to the coronavirus crisis. Having learned from the previous Middle East Respiratory Syndrome (MERS) outbreak, the country was fast to implement social distancing and mass testing. As a result, the country of more than 54 million people, had just 12,800 infections and 282 deaths. Most of those infected have since recovered.

As a result of social distancing and lack of foreign demand, the country’s economy contracted in April. Data from Statistics Korea showed that the gross domestic product (GDP) declined by a seasonally adjusted 0.3% from the fourth quarter. That was the worst contraction since the 3.3% drop in the past global financial crisis. It had expanded by 1% in the fourth quarter.

Data released today showed that the weakness continued into the second quarter. According to the office, industrial production in May dropped by 9.6% year on year after dropping by 5.1% in the previous month. Analysts polled by Reuters were expecting the production to fall by 4.5%. The production fell by 6.7% from the previous month.

Manufacturing production fell by 6.9% from April and by 9.8% from the same period in 2019. Also, capacity utilisation in the manufacturing sector fell by 0.2% from April but increased by 1.5% from the same period last year. Manufacturing and industrial numbers are important for South Korea because of they account for the largest part of the GDP.

On a positive note, the manufacturing index released by the Bank of Korea rose from the previous 45 to 51. That was the first improvement in two months.

USD/KRW react to South Korea retail sales

The USD/KRW also reacted to weak retail sales numbers from the country. According to the statistics office, retail sales rose by 4.6% in May, which was a slower growth than the previous 5.3%. They increased by 1.7% from the previous year.

Still, this was the second straight month of increased retail sales. At the height of the pandemic, the sales declined by 6%. In contrast, retail sales in the United States in May rose by more than 17%.

Additionally, equipment investments fell by 5.9% while domestic machinery orders declined by 12.6% from the previous month. Construction output declined by 4.3% while construction orders rose by 24.3%.

These numbers mean that the South Korean economy will shrink faster in the second quarter. In a recent report, the Bank of Korea estimated that the economy would shrink by at least 2% in the quarter and by 0.2% this year. The bank said:

“Considering the quarterly growth rates of last year and that of the first quarter, the growth rate in the second quarter of this year is estimated to fall in the low negative 2 percentage range.”

USD/KRW technical analysis

USD/KRW
USD/KRW technical outlook

The USD/KRW is trading at 1,196.30, which is the lowest it has been since June 11. On the daily chart, the price is below the 50-day and 100-day exponential moving averages. It is also below the 50-day and 100-day exponential moving averages. Therefore, the pair is likely to continue falling as bears attempt to test the important support at 1185, which is the lowest level since March.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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