Weekly Forex Review (August 31 – September 2, 2022)

Over the past week, the national currency has weakened against most traded currencies. Tenge weakened against the dollar (by 0.93%), euro (by 1.37%) and yuan (by 0.43%). At the same time, the tenge strengthened by 0.63% against the ruble. And since the beginning of the year, the tenge has weakened against the dollar by 9.42%, against the ruble by 36.11%, against the yuan by 0.60%, and against the euro strengthened by 3.36%.

The weekly volatility of the tenge against the dollar and ruble was 0.1% each, which is 0.9 p.p. and 1.0 p.p. lower than last week. These values indicate an inert reaction of the exchange rate to incoming information within the previous week. This may signal both an increase in the inefficiency of the foreign exchange market and indicate a temporary consensus of market participants on a rate that satisfies everyone.

The week following the period of tax payments by exporters was characterised by a noticeable decrease in the volume of exchange trading. Thus, the USDKZT pair trading volume over the past week decreased by 75.6% compared to the previous one (a decrease of 69.5% compared to the average weekly trading volume in 2022) and amounted to $ 175.70 million. We note that last week tenge was trading at rather low volumes. Such terms cannot indicate a truly equilibrium level of the current exchange rate.

The Tenge Index (August 31 – September 2)

During the week under review, the Tenge Index decreased by 0.6% and amounted to 79.50 points, and since the beginning of the year – by 12.4%.

The loss of positions previously won back during the big tax week, according to the Index took place with a decrease in the cost of oil to $ 93.0 per barrel and the continuing trend of strengthening the positions of the US dollar.

Since the second half of August, following the Tenge Index, there was a gap reduction in the dynamics of oil quotes and the exchange rate of the national currency. This is due to the fall in oil prices from above $ 100 per barrel level to the current $ 93 with relatively stable fluctuations in the Tenge Index at 77-80 points level. At the same time, the Index continues to ignore the strengthening of the dollar.

Jusan Analytics Opinion

The exchange rate returned to the previous levels of 470-472 tenge per dollar. This suggests that the observed strengthening during the big tax week did not meet the expectations of investors and market participants, but was due to temporarily increased demand.

The released by the end of August data on the significant acceleration of annual inflation to 16.1% (+1.4% MoM) and the measures announced during the Message by the President of the Republic of Kazakhstan to the Government and the National Bank, most likely, caused the wait-and-see position by participants of the foreign exchange market.

The further trend of exchange rate formation will depend on the response measures of the authorized bodies and the balance of fundamental internal and external factors.

We have carried out a significant revision of our forecasts due to the release of inflation data, which turned out to be significantly higher than our forecasts, as well as the adjustment of the  tightening monetary trajectory.

Read more in the paper

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Weekly Forex Review (August 31 – September 2, 2022) Weekly Forex Review (August 31 – September 2, 2022)
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