In a report dated the 14th, the Bank of Korea flagged offshore non-deliverable
forwards (NDFs) as a contributor to elevated won levels. It said
foreign-investor average daily NDF turnover in Q2 reached $22.8 bln, up from
$18.9 bln in Q1 (a $3.9 bln increase), and accounted for 76% of concurrent
domestic currency-hedging product volume ($30.0 bln). The bank noted NDFs,
traded offshore to hedge USD-KRW exposure, can transmit night-time offshore
moves into next-day onshore markets—a tail-wagging-the-dog effect—and warned
looser offshore regulation raises vulnerability to speculative shocks.
