Weekly Forex Review (August 8 – 12, 2022)

Over the past week, the tenge has mainly strengthened against the traded currencies. Thus,the national currency strengthened against the dollar by 0.41% to 476.01 tenge, the ruble by 1.51% to 7.81 tenge, the yuan by 0.25% to 70.64 tenge, and against the euro weakened by 0.25% to 490.15 tenge.  Since the beginning of the year, the tenge has weakened against the dollar by 10.24%, against the ruble by 35.59%, against the euro by 0.21% and the yuan by 3.88%.

The considering week is characterized by the extinction of increased volatility in the domestic foreign exchange market in June-July 2022.

The weekly volatility of the tenge exchange rate against the dollar was 0.2% (-0.1 p.p. to the previous week, -1.0 p.p. to monthly volatility in July), and 0.8% against the ruble (-1.6 p.p.and -0.9 p.p., respectively).

This week the trading volume of the USDKZT pair decreased by 11.15% compared to the previous week (a decrease of 25.77% compared to the average weekly trading volume in 2022) and amounted to 428.70 million dollars.

The Tenge Index

On August 15, Jusan Analytics team announced the Tenge Index (KZTX JA), which is calculated as the geometric weighted average of tenge exchange rates against foreign currencies (dollar, ruble, euro) multiplied by scaling factor. That brings the Index value to 100 on the base date of the index calculation (December 2018).

The Index reflects the purchasing power of tenge to the main foreign currencies used in trade and transfers. The growth of the tenge Index means the strengthening of the tenge against the major currencies, while the decline means the loss of the purchasing power of the domestic currency.

During the week under review, the Tenge Index decreased by 0.3% and amounted to 78.5 points. The weakening of the Index by 13.5% since the beginning of this year indicates the continued purchasing power loss of tenge relative to the currencies selected for its calculation.

The dynamics of the Tenge Index negatively track with the Dollar Index. Thus, the weakening of the dollar against other currencies means the tenge strengthening and, accordingly, the growth of its Index. The share of the dollar in the Tenge Index is 65%.

At the same time, despite rising oil prices, as one of the main fundamental factors of exchange rate formation, the Tenge Index shows a weakening. This indicates that internal fundamental factors have a greater impact, in particular, the premium for high inflation, which participants of the domestic foreign exchange market invest in the exchange rate.

Jusan Analytics Opinion

In our opinion, there are no objective grounds for a significant correction of the tenge exchange rate in the foreseeable future. According to our expectations, the next tax week will not have a lasting strengthening effect on the national currency. The easing of concerns about a recession in the global economy and the emergence of prerequisites for easing the Fed’s aggressive policy (a monthly slowdown in inflation and stabilization of inflation expectations) will have a restraining effect on the Dollar Index. Reducing concerns about the prospects for global demand in conditions of limited oil supply will help to maintain oil prices at the current levels favourable for the tenge exchange rate. All these factors will limit the downward pressure and reduce the volatility of the currencies of developing countries.

Low volumes of exchange trading in foreign currency with a simultaneous decrease in the volatility of exchange rates may indicate a temporary stabilization of currency expectations. The exchange rate of tenge against the dollar will continue to trade in the current range of 475-480 tenge when there are no unforeseen shocks.

Read more in the paper

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