The South Korean won slid 0.5 percent versus the dollar on Friday as inflation worries from higher oil prices hit local shares and as monetary authorities held the sidelines after Wednesday's reported dollar sales.
Investors stayed cautious over the chances of dollar-selling intervention and after a local shipbuilder announced a major foreign order, but the won extended its falls as the foreign exchange authorities were not seen in the market, traders said.
Dealers said authorities sold a massive $3 billion on Wednesday, following up on $5 billion of reported sales in June as it fights to shore up the won and bear down on inflation.
The local unit is expected to remain under pressure next week, as more investors are shunning South Korean stocks on concerns that inflation may hurt Asia's fourth-largest economy and on record-breaking oil prices, analysts said. Seoul shares closed 1.8 percent lower extending their losing streak to a seventh session, the longest in 5 years.
"The won's supplies are so strong that a major ship order did not provide big support. The won is expected to weaken to 1,060 (per dollar) next week and market players are likely to push it down further," said Jeong My-young, an analyst at Samsung Futures Inc. "But the authorities will definitely defend it as the currency is the only way to curb inflation now," Jeong added.
The won has lost about 10 percent this year against the dollar, making it the worst performing currency in Asia and inflating the local prices of imported oil and raw materials, which have already been rallying on their own. The South Korean currency was quoted at 1,050.2/1.0 per dollar as, compared to compared to Thursday's domestic close of 1,045.
The unit briefly jumped to as high as 1,040.2 amid wariness of intervention, but traders said the spike was not likely the result of the authorities' dollar sales. Intervention wariness mounted as traders said the Philippines central bank earlier intervened by selling dollars to support the struggling peso after the country's annual inflation rose to a 14-year high in June. But South Korean foreign authorities are unlikely to be able to push up the won, analysts said.
"The won's direction has already been decided. The next level is 1,065 (per dollar) as the won weakened past 1,050 today. If the 1,065 is broken, the won is expected to fall to 1,100 without any support level," said Lee Jin-woo, a senior analyst at NH Investment & Futures Inc.
Oil steadied above $145 a barrel on Friday in Asia ahead of the US Independence Day holiday and on concerns over geopolitical tensions in the Middle East. Foreign investors sold a net 265.1 billion won worth of stocks in the country's main exchange. They dumped a combined net 5.65 trillion won during the previous 19 consecutive sessions. On the corporate front, Daewoo Shipbuilding and Marine Engineering Co Ltd said it had won a 2.44 trillion won ($2.34 billion) ship order from Europe, causing expectations for more won demand.