USD/KZT exchange rate Overview
Increased currency sale volumes support Tenge from excessive weakening
The third quarter kicked off for tenge with some exchange rate stabilization after a noticeable weakening in June. As a result, the average KZT exchange rate weakened by 6.07% by the end of July amid the decline in the National Fund operations in terms of currency sale volume. According to the results of July, foreign currency sales from the National Fund to ensure transfers to the republican budget amounted to $506 mln and about $984 mln as part of selling the currency to purchase Kazatomprom shares. In August, according to the forecasts of the Government, the National Fund will sell currency at similar levels of 500-600 mln. These transactions, in our opinion, support the exchange rate from excessive weakening. As we noted earlier, the level of KZT 480 per US dollar is an attractive level for market participants to sell the U.S. currency.
Falling oil prices may strengthen devaluation expectations in the market
Brent crude oil prices fell to $77 amid a slowdown in the global economy and easing geopolitical tensions. Domestic consumption in China is declining at a record pace, and the U.S. unemployment rate is rising. OPEC and IEA are downgrading their oil demand growth forecasts for 2024-2025, which also puts pressure on the market. Oil prices are expected to decline further, driven by easing geopolitical tensions in the Middle East and a slowdown in global consumption caused by a prolonged period of high base rates. Oil prices, although showing a weak correlation with the KZT exchange rate over the last five years, still may weaken the country's balance of payments in case of further decline, which, in turn, will strengthen devaluation expectations in the FX market.
Conclusion
Strengthening of fundamentally weak tenge with negative current account balance did not reflect the equilibrium values of the domestic currency. Sharp depreciation of tenge at falling currency sale volumes from the national funds is a natural factor. Now due to increased currency sales, the exchange rate does not go higher 480, but decline in oil prices and the US Dollar Index have a negative impact on the domestic currency.
Therefore, we believe that the current levels at KZT 465-480 have a chance to remain until the end of the year in the absence of major shocks on external markets.
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