Key Moments
- TD Securities anticipates a weaker Korean Won, with USD/KRW retracing higher toward 1400 amid pressure on global equities.
- The firm underscores KRW’s unusually strong positive correlation with both the standalone US equity market and the US vs RoW equity ratio.
- FX carry, valuation factors, and relatively low KRW yields – even after modest Bank of Korea rate hikes in 2026 – are cited as reinforcing the bearish Won outlook.
TD Securities Calls for Renewed USD Strength Against KRW
TD Securities projects additional downside for the Korean Won (KRW), expecting USD/KRW to move higher toward the 1400 level as investors step back from the AI build-out theme and global equity markets remain under strain. The firm argues that the KRW is particularly vulnerable in this environment due to its strong linkage with equity performance.
According to the analysis, KRW’s performance shows an unusually robust positive relationship with both US equity markets and the relative performance of US equities versus the rest of the world (RoW). TD Securities contends that, as AI-related equities come under sustained pressure, this correlation should translate into renewed KRW weakness against the US Dollar and on various cross-currency pairs.
Equity Market Correlations Underscore Vulnerability of the Won
TD Securities frames its FX view around KRW’s behavior relative to global equity benchmarks. The firm highlights that KRW stands out among major currencies when its correlation to US risk assets is examined over a one-year horizon.
| Factor Highlighted | Implication for KRW |
|---|---|
| Correlation to standalone US equity market | Positive relationship amplifies KRW weakness when US stocks decline |
| Correlation to US vs RoW equity ratio | Highest positive correlation among major currencies, tying KRW closely to US relative equity performance |
| AI-led global equity rout | Expected to drive further reversal of KRW’s year-to-date gains versus USD and on crosses |
The firm explains this equity linkage as follows:
“As for KRW, we continue to hold the view that USDKRW could retrace toward 1400. The Chart of the Week shows each major currency’s one-year correlation to the standalone US equity market, and to the US vs RoW equity market ratio.”
“Idiosyncratically, KRW has the highest positive correlation to the relative US vs RoW equity ratio and positive correlation to the standalone US equity market.”
Carry, Valuation, and Rates Support a Bearish KRW Stance
Beyond equity correlations, TD Securities also points to FX carry and valuation indicators as corroborating factors for a weaker Won. These metrics, in the firm’s view, align with the expectation that KRW will continue to give back its earlier gains.
The analysis stresses that monetary policy dynamics are not sufficiently supportive for KRW in the current global context:
“As a result, in the case that the AI-led global equity rout persists, KRW should continue to retrace its year-to-date gains both against the USD and on the crosses. FX carry and value factors provide further confirmation of this view. While the Bank of Korea has hiked rates modestly in 2026, the level of KRW yield remains low in a global context.”
The combination of relatively low yields, unfavorable carry, and high sensitivity to equity market performance forms the basis of TD Securities’ call for USD/KRW to retrace higher toward 1400 if the downturn in AI-related and broader global equities continues.
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