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31 October 2024 | 12:02
How the US election could affect the tenge exchange rate
Tengrinews.kz - How might the presidential elections in the United States and their results affect tenge exchange rates? Kazakhstani financial analysts shared insights on the potential impact of the results on the tenge.
ПОДЕЛИТЬСЯ
Tengrinews.kz - How might the presidential elections in the United States and their results affect tenge exchange rates? Kazakhstani financial analysts shared insights on the potential impact of the results on the tenge.
On November 5, the United States will hold presidential elections, with Donald Trump and Kamala Harris as the main candidates. This will be the 60th presidential election in U.S. history, in which the 47th president of the country will be elected.
According to financial analyst Arman Beisembayev, the U.S. election and its results are unlikely to directly influence the tenge exchange rate.
"In 2016, nearly everyone expected Hillary Clinton to win, and no one anticipated Trump’s victory. When Trump won in a surprising and controversial way, it shocked markets. However, this didn’t significantly affect the tenge. The election did have a notable impact on the stock market, which in turn slightly influenced oil prices. The market saw moderate declines, but there wasn’t a collapse," Beisembayev explained.
The expert recalled that the stock market recovered within two to three days.
"Prices returned to previous levels. The initial shock of an unexpected leader in power subsided quickly. Trump’s win in 2016 was a ‘black swan’ event, a surprise no one foresaw. By 2024, this factor isn’t present. Could Trump win this time? Yes, it’s possible. Since 2016, it’s no longer surprising. Could Harris win? That’s also possible. After his first term, Trump is a known entity: people know who he is and what his policies are likely to be," the financial analyst added.
According to Arman Beisembayev, the key factor is not the election day itself but its consequences.
"The election alone won’t impact the tenge. The main factor is what happens afterward, during the next four years. Trump’s policies, if implemented, could have far-reaching effects, given that the U.S.A is the world’s largest economy," he emphasized.
Inauguration
The financial analyst noted that if Trump is re-elected in November, his inauguration will only be in January. Until then, Biden will remain in office and continue current policies.
Beisembayev believes that if Trump wins, his top priority will be ending the conflict in Ukraine.
"Trump promised to end the war within 24 hours and sign a peace agreement within a month. We’ll see if he can deliver on this promise. If so, the war could conclude by spring," he said.
The analyst added that the end of the conflict could notably impact Russia’s economy, which is already strained by sanctions and high interest rates.
"Ending the war could hit Russia hard. The economy would stop being bolstered by military funding, and issues like inflation, high interest rates, and cash shortages—again due to sanctions and technological lag—would persist. Paradoxically, experts studying this issue suggest that lifting sanctions could be far worse for Russia than maintaining them, as removing sanctions might not lead to improvement; it could actually worsen the situation. This could destabilize the economic framework that Russia has built over the past two years," Arman Beisembayev predicted.
These developments will likely affect the ruble, which is expected to decline under these circumstances.
"The ruble is clearly not inclined to strengthen. In fact, the Russian authorities don’t really need a strengthening ruble either. This could, in turn, drag down the tenge's value because, one way or another, we remain tied to the Russian economy. There is no direct, strong link between us, and it has weakened significantly over the past two years. However, this doesn’t negate the fact that if Russia's economy worsens, ours will also suffer," the analyst explained.
One of the most interesting aspects he highlighted is the potential easing of monetary policy in the U.S. A decrease in interest rates is expected, which could impact the dollar index.
"By the end of 2024, I wouldn’t expect anything shocking, such as a total collapse or devaluation. Much will depend on the policy adopted by the new U.S. president. If monetary policy is eased, leading to a weaker dollar, this could result in rising oil prices, as the value of the U.S. currency is inversely proportional to oil prices. When the dollar depreciates on the international market, commodities typically become more expensive, and vice versa. An increase in business activity will drive up demand for energy resources, which means a higher oil demand, leading to rising oil prices, consequently, strengthening the tenge. At the very least, it won’t weaken," Beisembayev stated.
Investments
The analyst believes there will be no significant consequences for foreign investment in Kazakhstan following the elections.
"The U.S. has always had quite good relations with Kazakhstan. Naturally, if the U.S. increasingly turns to isolationism, American investments will likely decrease. However, investments, funds, and U.S. expenditures in Kazakhstan, especially in the oil sector, are likely to remain. Why wouldn’t they? These are functioning assets that generate income," the analyst noted.
Beisembayev also reminded that the United States is not a key investor in Kazakhstan.
"The key investors are primarily from Europe. They are our main buyers and investors, along with Russia and China. In this sense, the U.S. is an important player in our market, but not to the extent that they depend on our oil. The U.S. doesn’t need our resources or raw materials; they are practically independent of us in this regard. There aren’t any significant, global business interests for them in Kazakhstan," he explained.
Deflation
According to the analyst, there has been a significant decline in inflation levels in the Eurozone recently.
"In France and Germany, inflation has already dropped to 1.9% and 1.8%, respectively, indicating that central banks have successfully reached their targets. However, this decrease raises certain concerns about the potential for deflation. The shift from chronically high inflation to the threat of deflation is a worrying signal, and it is much worse than high inflation. A fall in prices is disastrous for the economy, especially for a modern one. The U.S. is also quite close to achieving its target, so they have begun to gradually lower interest rates," Arman Beisembayev explained.
At the same time, the expert noted that there have been many serious signals in the macroeconomic indicators of the U.S. indicating that their economy is not in good shape.
"The economy is slowly starting to 'suffocate.' If they don’t start lowering interest rates at an accelerated pace now, it could lead to a full-blown crisis. Naturally, the crisis will initially begin in the financial system, leading to a liquidity crisis, and then it will spill over into the economy. I believe that the U.S. is currently lagging behind; they are definitely six months late in taking action, and they should have started earlier. For now, the situation remains relatively stable," the financial analyst concluded.
According to financial consultant Rassul Rysmambetov, despite differing political agendas among Republicans and Democrats, the U.S. economy will determine the course of decisions rather than the president.
"Unlike many other countries, the president in the U.S. does not have a strong direct influence on the economy. He listens to his advisors with education and experience. In the next 2-3 years, we will likely see the dollar weakening, as the U.S. needs to rearm its economy, improve infrastructure, and implement some populist measures. Therefore, they will be printing money, meaning that the Federal Reserve's interest rate will decrease to very low levels," the expert stated.
Rysmambetov noted that the weakening of the dollar against all global currencies, including the tenge, presents new opportunities for Kazakhstan.
"When the dollar weakens against all other currencies, including the tenge, it opens up a window of opportunity for us to borrow dollars, enabling us to also rearm our economy. If the dollar falls, gold prices typically rise as well. Therefore, it will be important for us to sell a large portion of these resources at a high price or, preferably, keep them within the country," he explained.
Strategically, Kazakhstan and the U.S. remain economic allies, the expert emphasized.
"It's important to consider the future stance of the U.S. regarding the war in Ukraine and the funding they will allocate, which they will do at any cost. Thus, Russia's countermeasures will also be significant for us. However, strategically, we are economic allies, participating in many programs, and we have excellent relations with the U.S. Only a few countries’ citizens receive 10-year visas to the U.S. Kazakh citizens can easily obtain visas for 5-10 years," said Rassul Rysmambetov.
The expert believes that potential consequences for foreign investments in Kazakhstan will largely depend on how the country presents its investment climate.
"For the average American investor, Kazakhstan does not differ much from other regions like South America, Africa, or Asia. The key factor for them remains the return on investment — it's essential to understand how much they can earn from investing in securities, resources, or production. Here, we need to think about what we want from the U.S. as the largest investor in the world. After that, we should build our investment climate accordingly," the analyst explained.
Rysmambetov noted that sectors such as metallurgy and oil are particularly vulnerable to changes in U.S. policy.
The financial analyst also stated that the impact of changes in the economic situation after the U.S. elections on Kazakhstan will not be as significant.
"What happens in the U.S., Russia, or China is honestly not our primary concern; it is secondary. The most important thing is how we envision Kazakhstan, society, akimats (local government administrations), and the government in a broader sense. While developments in other countries matter to us, they are not as crucial as our own actions within the country," the expert concluded.
Read how the U.S. election could impact Kazakhstan's economic situation and its foreign policy priorities.
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