SEOUL (Sept 7): South Korea's National Pension Service (NPS) has suspended foreign exchange hedging operations, a market source told Reuters on Monday, as the won strengthened to a near two-year high.
The NPS, the world's third-largest public pension fund and a major player in domestic financial markets, had been conducting currency hedging flexibly this year after raising its limit to help policymakers curb weakness in the won.
The pension fund's hedging operations effectively lift dollar supply in the onshore currency market.
"FX hedging by the NPS has been suspended. It seems there is dollar buying demand today," said the source, declining to be identified due to the sensitivity of the matter.
Another market source said the pension fund's dollar buying could be conducted via both regular and "market average rate" trading.
The NPS declined to comment on foreign exchange policies.
The move came as a sharp rebound in the won has raised worries about one-sided market volatility. Foreign exchange authorities recently bought about US$20 billion (RM80.9 billion) that chipmaker SK Hynix sold after its US listing.
"The NPS conducted extensive strategic hedging in the first half and dollar-won exchange rates have fallen greatly, so if it suspends hedging and gradually unwinds its hedging from the first half, that would generate a huge amount (of dollar buying) capping the bottom end of exchange rates," said Lee Min-hyeok, a foreign exchange analyst at Kookmin Bank.
"Given large trade surpluses, the direction (of dollar-won rates) will still be downwards in the long run, but the pace will become slower," Lee said.
Earlier on Monday, the won strengthened as much as 1.15% to 1,334.7 per dollar to hit its strongest level since Oct 4, 2024, before cutting gains to 1,341.5 as of 0635 GMT (2.35pm Malaysia time).
The currency has strengthened 16% against the dollar so far this quarter, reversing its course after weakening for four straight quarters to 17-year lows.
The NPS held 1,865.6 trillion won (RM5.61 trillion) of assets at the end of June, with overseas assets accounting for 54% of the total.
Uploaded by Syed Azahedi