Tengrinews.kz — The tenge has strengthened sharply against the US dollar over the past week since June 26, continuing a month-long trend. This comes amid a softening of National Bank policy and falling market rates, despite a decline in global oil prices.
Tenge strengthening even more pronounced over the long term
Following the day session on KASE, the dollar settled at 472.03 tenge, with the US currency hitting an intraday low of 470.06 tenge. At the close of trading on June 26, the dollar was valued at 485.7 tenge. Thus, the national currency has strengthened by 13.67 tenge, or 2.7 percent, in just one week.
Over a longer period, the appreciation of the tenge is even more striking. The dollar last exceeded 500 tenge in late February; since then, the US currency has depreciated by 13.9 percent. Analysts attribute this trend to an influx of non-resident investment in the stock market (confirmed by statistics and National Bank Governor Timur Suleimenov), as well as significant volumes of foreign currency sales by the National Bank as part of gold operation mirroring. This process is detailed further in this report.
The current phase of tenge strengthening is occurring under conditions that would typically suggest the opposite. In early June, the National Bank lowered the base rate from 18 to 17 percent, which theoretically could have reduced the attractiveness of the Kazakh stock market for foreign investors. Furthermore, global oil prices have been declining since mid-May, with Brent crude on the London ICE exchange falling by 29.8 percent during this period.
Base rate remains attractive for investors
Financial analyst Arman Beisembaev explained that neither factor should have hindered the tenge's rise. Despite the recent cut, the base rate remains high, continuing to attract international investors.
"A high base rate inherently incentivizes investors because investing in tenge remains profitable. The interest rate differential (compared to other countries) is still favorable. 'Hot money' is still circulating in our market," Beisembaev says.
What is actually driving the tenge exchange rate
Notably, on July 1, the National Bank disclosed a new mechanism utilized since June to "mirror" transfers from the National Fund. Essentially, the regulator sells additional volumes of foreign currency from the National Fund on the domestic market. In June, $200 million was sold to facilitate these transfers. The National Bank plans to sell another $460 million gradually by the end of the year. While the specific portion sold in June was not disclosed, Beisembaev notes that the additional supply of foreign currency likely had a positive impact on the tenge.
"The ongoing tranches from the National Fund act as a supply of foreign currency and contribute to the additional strengthening of the tenge—this is an internal factor. It does not depend on oil prices, inflation, or the base rate. These are tranches from the National Fund intended to replenish the budget. They are significant as a standalone factor. There may also be operations conducted by the Ministry of Finance that play a role. Additionally, do not forget the mandatory sale of a portion of export foreign currency earnings on the domestic market. When you combine all these factors, it becomes a purely internal situation that has virtually nothing to do with external circumstances. Under such conditions, the exchange rate can be anything. You cannot tie it to inflation, the base rate, or the state of oil prices," Beisembaev noted.
Is oil irrelevant?
The expert continued that oil prices affect the currency market with a lag. Only in recent weeks have exporters begun receiving additional revenue from prices that spiked in March due to US-Iran tensions, which they are now selling on the domestic market.
"In October last year, oil prices hovered around $60–$70 per barrel, and the tenge was near 550. Now oil has returned to roughly that same range, slightly above 70. But there is a risk that in the near future—perhaps as early as next week—it could drop below 70, yet the exchange rate is not 550, but 470. How do you explain that? It turns out there is no dependency on oil prices. Furthermore, taxes must be paid, requiring you to bring in foreign currency revenue, sell it on the domestic market, and convert it into tenge for the budget. These are the factors. And if you line them up, they are exclusively internal," Beisembaev concluded.