SEOUL: South Korea’s National Pension Service has begun strategic currency hedging and is selling dollars into the market, according to people familiar with the matter, which could result in purchases of up to about US$50 billion in local currency.
The first dollar sales, worth hundreds of millions of dollars, were observed in the forward market on Monday afternoon (Jan 13) Seoul time, the people said, asking not to be named because they weren’t authorised to speak publicly on the transactions.
The won weakened past levels the NPS had determined as triggers for strategic hedging last month, driven lower by global dollar strength and domestic political uncertainty. The NPS had internal guidelines that said sales could begin if the won’s average closing exchange rate exceeded a certain level - then around 1,450 won per dollar - for five business days, people familiar with the matter told Bloomberg at the time.
Once activated, strategic currency hedging will continue unless the exchange rate drops significantly, the people said, without giving a specific level.
The won traded 0.3 per cent stronger at 1,463.85 per dollar on Tuesday morning, reflecting risk-on sentiment following news that the incoming economic team for US President-elect Donald Trump is considering a gradual approach on tariffs.
Earlier this month, Bank of Korea said NPS’s hedging was "expected to come out soon.”
The pension service is using a mixed method for the dollar sales, with new overseas investments being made via currency swaps with the country’s central bank and existing investments sold via forwards, the people said. - Bloomberg
